AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 26, 1996.
REGISTRATION NO. 333-08243
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CORNELL CORRECTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
76-0433642
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
DELAWARE 8361, 8744
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OF ORGANIZATION) CLASSIFICATION CODE NUMBER)
4801 WOODWAY, SUITE 400W
HOUSTON, TEXAS 77056
(713) 623-0790
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID M. CORNELL
CHIEF EXECUTIVE OFFICER
CORNELL CORRECTIONS, INC.
4801 WOODWAY, SUITE 400W
HOUSTON, TEXAS 77056
(713) 623-0790
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
JAMES L. LEADER BART FRIEDMAN
BAKER & BOTTS, L.L.P. CAHILL GORDON & REINDEL
3000 ONE SHELL PLAZA 80 PINE STREET
HOUSTON, TEXAS 77002 NEW YORK, NEW YORK 10005
(713) 229-1234 (212) 701-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [X]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [X]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE(3)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001
per share............................. 4,025,000 $14.00 $56,350,000 $19,432
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 525,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED AUGUST 26, 1996
3,500,000 SHARES
CORNELL CORRECTIONS, INC.
COMMON STOCK
Of the 3,500,000 shares of Common Stock, par value $.001 per share (the
"Common Stock"), offered hereby, 3,023,103 shares are being offered by Cornell
Corrections, Inc. (the "Company"), and 476,897 shares are being offered by the
Selling Stockholders. See "Principal and Selling Stockholders." The Company will
not receive any proceeds from the sale of shares of Common Stock by the Selling
Stockholders.
Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $ and $ per share. See "Underwriting" for the factors considered in
determining the initial public offering price. The Company has applied for
quotation of the Common Stock on the Nasdaq National Market under the symbol
"CRNL."
For a discussion of certain risks of an investment in the shares of Common
Stock offered hereby, see "Risk Factors" on pages 7 - 13.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions* Company` Stockholders
<S> <C>
Per Share............................ $ $ $ $
Total................................ $ $ $ $
</TABLE>
- ------------
* The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
` Before deducting estimated expenses of the offering of $ which will be paid
by the Company.
Certain stockholders of the Company have granted the Underwriters a 30-day
option to purchase up to 525,000 additional shares of Common Stock on the same
terms per share solely to cover over-allotments, if any. If such option is
exercised in full, the total price to public will be $ , the total
underwriting discounts and commissions will be $ and the total
proceeds to Selling Stockholders will be $ . See "Underwriting."
------------------------
The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of the certificates
therefor will be made at the offices of Dillon, Read & Co. Inc., New York, New
York on or about , 1996. The Underwriters include:
DILLON, READ & CO. INC. EQUITABLE SECURITIES CORPORATION
The date of this Prospectus is , 1996.
[GRAPHICS - MAP SHOWING LOCATION
OF COMPANY-OPERATED FACILITIES AND
PICTURES OF FACILITIES AND
PERSONNEL OF THE COMPANY]
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE
INDICATES: (I) ALL REFERENCES TO THE "COMPANY" INCLUDE CORNELL CORRECTIONS, INC.
AND ITS SUBSIDIARIES AND THEIR RESPECTIVE PREDECESSORS, (II) THE INFORMATION
CONTAINED IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION AND GIVES EFFECT TO THE RECLASSIFICATION OF THE COMPANY'S
CAPITAL STOCK (THE "RECLASSIFICATION") (SEE "CAPITALIZATION") TO BE EFFECTED AS
OF OR PRIOR TO THE COMPLETION OF THE OFFERING BEING MADE HEREBY (THE "OFFERING")
AND (III) ALL REFERENCES TO NUMBER OF BEDS WITH RESPECT TO THE COMPANY'S
FACILITIES ARE TO DESIGN CAPACITY.
THE COMPANY
The Company is one of the leading providers of privatized correctional,
detention and pre-release services in the United States. The Company is the
successor to entities that began developing institutional correctional and
detention facilities in Massachusetts and Rhode Island in 1991 and pre-release
facilities in California in 1977. The Company has rapidly expanded its
operations through acquisitions and internal growth and is currently developing
or operating facilities in California, Texas, Rhode Island, Utah and North
Carolina. As of August 20, 1996, the Company has contracts to operate 20 private
correctional, detention and pre-release facilities with an aggregate design
capacity of 3,349 beds. Of these facilities, 18 are currently in operation
(3,114 beds) and two are under development (235 beds). See "Business_--
General."
The Company provides to governmental agencies the integrated development,
design, construction and operation of facilities within three areas of
operational focus: (i) secure institutional correctional and detention services,
(ii) non-secure pre-release correctional services and (iii) juvenile
correctional and detention services. See "Business -- Facility Design,
Construction and Finance." Institutional correctional and detention services
primarily consist of the operation of secure adult incarceration facilities.
Non-secure pre-release correctional services primarily consist of providing
pre-release and halfway house programs for adult inmates serving the last three
to six months of their sentences and preparing for re-entry into society at
large. The Company is currently developing and constructing a 160-bed juvenile
short-term correctional and detention facility scheduled to commence operations
in the first quarter of 1997. At the facilities it operates, the Company
generally provides secure incarceration and non-secure residential services,
institutional food services, certain transportation services, general education
programs (such as high school equivalency and English as a second language
programs), health care (including medical, dental and psychiatric services),
work and recreational programs and chemical dependency and substance abuse
programs. Additional services provided in the Company's pre-release facilities
typically include life skills and employment training and job placement
assistance. Juvenile services provided by the Company will include medical,
educational and counseling programs tailored to meet the special needs of
juveniles. The Company derives substantially all its revenues from operating
correctional, detention and pre-release facilities for federal and state
governmental agencies in the United States. Of the facilities operated by the
Company, two are owned by the Company, 16 are leased by the Company and two are
operated through other arrangements. See "Business -- Properties."
There is a growing trend in the United States toward privatization of
governmental correctional and detention services and functions. Generally, this
trend results from continuing pressures faced by governments to control costs
and improve service efficiency as a result of the rapidly growing inmate
population in the United States. According to reports issued by the United
States Department of Justice, Bureau of Justice Statistics ("BJS"), the number
of adult inmates in United States federal and state prison facilities increased
from 503,601 at December 31, 1985 to 1,104,074 at June 30, 1995, an increase of
more than 119%. According to the Private Adult Correctional Facility Census,
prepared by the Private Corrections Project Center for Studies in Criminology &
Law, University of Florida ("1995 Census"), the design capacity of privately
managed adult correctional and detention facilities in the United States
increased from 26 facilities with a design capacity of 10,973 beds at December
31, 1989 to 92 facilities with a design capacity of 57,609 beds at December 31,
1995. Even after such growth, according to the 1995 Census, less than five
percent of
3
adult inmates in United States correctional and detention facilities were housed
in privately managed facilities.
OPERATING STRATEGIES
The Company's objective is to enhance its position as one of the leading
providers of private correctional, detention and pre-release services. The
Company is committed to the following operating strategies:
PURSUE DIVERSE MARKETS.
The Company intends to continue to diversify its business within three
areas of operational focus. Historically, the Company primarily provided
pre-release services and believes that it has a long-standing reputation as an
effective manager of such facilities. However, after giving effect to the
Company's acquisition of substantially all the assets of MidTex Detentions, Inc.
("MidTex") in July 1996, a majority of the Company's facility capacity and
revenues will be concentrated in the institutional correctional and detention
service area. In addition, the Company is currently developing a juvenile
correctional and detention facility and intends to pursue additional contracts
to provide juvenile correctional and detention services. The Company believes
that, by being a diversified provider of services, the Company will be able to
compete for more types of contract awards and adapt to changes in demands within
its industry for varying categories of services.
DELIVER COST EFFECTIVE AND QUALITY MANAGEMENT PROGRAMS.
The Company intends to position itself as a low cost, high quality provider
of services in all its markets. The Company will focus on improving operating
performance and efficiency through standardization of practices, programs and
reporting procedures, efficient staffing and attention to productivity
standards. The Company also emphasizes quality of services by providing trained
personnel and effective programs designed to meet the needs of contracting
governmental agencies.
PROVIDE INNOVATIVE SERVICES.
The Company intends to implement specialized and innovative services to
address unique needs of governmental agencies and certain segments of the inmate
population. For example, certain facilities of the Company are equipped with
interactive satellite links to courtrooms and judges that should reduce the
time, effort and expense related to transporting inmates to offsite courtrooms.
The Company also intends to actively pursue contracts to provide services for
specialized segments of the inmate population categorized by age (such as
services for aging inmates or juvenile offenders), medical status, gender or
security needs.
GROWTH STRATEGIES
The Company expects the growth in privatization of correctional, detention
and pre-release facilities by governmental agencies to continue in the
foreseeable future. By expanding the number of beds under contract, the Company
should be able to increase economies of scale and purchasing power and qualify
to be considered for additional contract awards. The Company will seek to
increase revenues by pursuing the following growth strategies:
BID FOR NEW CONTRACT AWARDS.
The Company will selectively pursue opportunities to obtain contract awards
for new privatized facilities. As of August 20, 1996, the Company has submitted
written bids to operate four new projects with an aggregate design capacity of
760 beds. Awards for these projects should be made by the applicable
governmental agencies by the end of 1996. The Company is also currently
considering five additional projects with an aggregate design capacity of over
3,600 beds for which it may submit written bids before the end of 1996.
INCREASE BED CAPACITY OF EXISTING FACILITIES.
The Company has the potential for substantial capacity expansion at certain
existing facilities with modest capital investment. As a result, the Company
intends to pursue expansion of such facilities by obtaining awards of additional
or supplemental contracts to provide services at these facilities.
4
PURSUE STRATEGIC ACQUISITIONS.
The Company believes that the private correctional and detention industry
is consolidating. The Company believes that the larger, better capitalized
providers will acquire smaller providers that are typically too undercapitalized
to pursue the industry's growth opportunities. The Company intends to pursue
selective acquisitions of other operators or developers of private correctional
and detention facilities in institutional, pre-release and juvenile areas of
operational focus to enhance its position in its current markets, to acquire
operations in new markets and to acquire operations that will broaden the types
of services which the Company can provide. The Company believes there are
opportunities to eliminate costs through consolidation and coordination of the
Company's current and subsequently acquired operations.
RECENT EXPANSION
During 1996, the Company has added the management of 2,002 beds through
opening or contracting to open four new facilities (387 beds) and two
acquisitions (1,615 beds). In May 1996, the Company completed the acquisition of
a 310-bed pre-release facility located in Houston, Texas (the "Reid Center")
previously operated by the Texas Alcoholism Foundation, Inc. and The Texas House
Foundation, Inc. The Company believes that the Reid Center is the largest single
facility pre-release center in Texas and that its acquisition enhances the
Company's position as one of the leaders in providing pre-release services.
In July 1996, the Company completed the acquisition of substantially all
the assets of MidTex, an operator of three secure institutional facilities (the
"Big Spring Facilities") with an aggregate design capacity of 1,305 beds for
the United States Department of Justice, Federal Bureau of Prisons ("FBOP") in
Big Spring, Texas. The MidTex acquisition more than doubled the number of
institutional facility beds managed by the Company, and the Company believes
that the acquisition provides a basis for continued expansion of the Company's
institutional area of operational focus.
------------------------
The Company's principal executive offices are located at 4801 Woodway,
Suite 400W, Houston, Texas 77056, and its telephone number at such address is
(713) 623-0790.
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock offered by the Company..................................... 3,023,103 shares
Common Stock offered by the Selling Stockholders........................ 476,897 shares
-----------
Total Common Stock offered......................................... 3,500,000 shares
===========
Common Stock to be outstanding after the Offering....................... 6,265,398 shares(1)
Use of Proceeds by the Company.......................................... For repayment of indebtedness and general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.................................. CRNL
</TABLE>
- ------------
(1) Excludes an aggregate of 353,498 shares of Common Stock reserved for
issuance after completion of the Offering upon exercise of outstanding stock
options granted under the Company's 1996 Stock Option Plan (the "Stock
Option Plan") and 624,611 shares of Common Stock reserved for issuance upon
exercise of outstanding stock options and warrants not included under the
Stock Option Plan. See "Management -- Stock Option Plan" and Note 4 of Notes
to the Company's Consolidated Financial Statements.
5
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary consolidated financial data set forth below should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto, "Pro Forma Financial Data" and "Selected Consolidated Historical and
Pro Forma Financial Data" included elsewhere in this Prospectus. The Pro Forma
Statement of Operations Data for the year ended December 31, 1995 and for the
six months ended June 30, 1996 and the Pro Forma Balance Sheet Data as of June
30, 1996 reflect the results of operations and consolidated financial position
of the Company and its subsidiaries as if (i) the acquisitions of MidTex and the
Reid Center, (ii) the issuance by the Company of shares, and options and
warrants to purchase shares, of Class A Common Stock ("Class A Common Stock")
and Class B Common Stock ("Class B Common Stock") of the Company after June 30,
1996, (iii) the Reclassification, (iv) the exercise of outstanding stock options
or warrants relating to the shares of Common Stock to be sold by the Selling
Stockholders in the Offering, and (v) the Offering and the application of the
estimated net proceeds therefrom by the Company, had occurred, in the case of
the Statement of Operations Data, on January 1, 1995, and, in the case of the
Balance Sheet Data, on June 30, 1996.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------------------------------------------------- ------------
SIX MONTHS
ENDED YEAR ENDED
YEAR ENDED DECEMBER 31, JUNE 30, DECEMBER 31,
----------------------------------------------------- -------------------- ------------
1991 1992 1993 1994(1) 1995 1995 1996 1995
--------- --------- --------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Total revenues............. $ 235 $ 2,540 $ 3,198 $ 15,689 $ 20,692 $ 10,107 $ 11,337 $ 38,716
Contribution from
operations............... 232 2,537 355 2,739 3,668 1,784 1,688 7,142
Income (loss) from
operations before
impairment loss.......... (736) 910 (960) (220) 137 233 59 3,311
Income (loss) from
operations............... (736) 910 (960) (220) (6,463 (2) 233 59 (3,289)
Interest expense........... 7 -- -- 294 1,115 269 498 --
Income (loss) before income
taxes.................... (742) 940 (915) (376) (7,442) 34 (388) (3,144)
Net income (loss).......... (742) 940 (915) (477) (7,442) 34 (388) (4,601)
Earnings (loss) per
share.................... $ (.29) $ .35 $ (.32) $ (.12) $ (1.80) $ .01 $ (.11) $ (.64)
Number of shares used in
per share
computation(3)........... 2,548 2,651 2,855 3,971 4,143 4,244 3,683 7,166
Supplemental earnings
(loss) per share(4)...... $ (1.34) $ .02
OPERATING DATA:
Beds under contract (end of
period).................. -- -- 282 1,155 1,478 1,135 1,796 3,093
Contracted beds in
operation (end of
period).................. -- -- 282 1,155 1,135 1,135 1,561 2,750
Average occupancy based on
contracted beds in
operation(5)............. -- -- -- 92.1% 98.9% 97.8% 95.8% 91.8%
</TABLE>
SIX MONTHS
ENDED
JUNE 30,
------------
1996
------------
STATEMENT OF OPERATIONS DATA:
Total revenues............. $ 21,071
Contribution from
operations............... 3,503
Income (loss) from
operations before
impairment loss.......... 1,724
Income (loss) from
operations............... 1,724
Interest expense........... --
Income (loss) before income
taxes.................... 1,789
Net income (loss).......... 1,100
Earnings (loss) per
share.................... $ .16
Number of shares used in
per share
computation(3)........... 6,864
Supplemental earnings (loss) per share(4)......
OPERATING DATA:
Beds under contract (end of
period).................. 3,101
Contracted beds in
operation (end of
period).................. 2,866
Average occupancy based on
contracted beds in
operation(5)............. 94.1%
JUNE 30, 1996
-----------------------
HISTORICAL PRO FORMA
---------- ---------
(UNAUDITED)
BALANCE SHEET DATA:
Working capital.................... $ 2,058 $ 5,443
Total assets....................... 13,965 39,181
Long-term debt, including current
portion.......................... 13,868 68
Stockholders' equity (deficit)..... (3,641) 33,353
- ------------
(1) Includes operations purchased by the Company on March 31, 1994.
(2) The 1995 loss from operations includes a $6.6 million impairment loss
resulting from a writedown of goodwill. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations -- Year Ended December 31, 1995 Compared to Year Ended December
31, 1994."
(3) Prior to March 31, 1994, the Company was organized as a partnership. For
purposes of computing average shares outstanding for the period prior to
March 31, 1994, the partnership units were converted to common shares using
a one-to-one unit-to-share conversion ratio.
(4) Supplemental per share data is presented to show what the earnings (loss)
would have been if the repayment of debt with proceeds from the Offering had
taken place at the beginning of the respective periods.
(5) For any applicable facilities, includes reduced occupancy during the
start-up phase. See "Business -- Facility Management Contracts." For the
year ended December 31, 1993, occupancy did not commence until December
1993.
6
RISK FACTORS
ANY INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING
FACTORS, WHICH CAN AFFECT THE COMPANY'S CURRENT POSITION AND FUTURE PROSPECTS,
IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, IN CONNECTION
WITH ANY INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY.
HISTORY OF LOSSES
The Company incurred net losses of $915,000, $477,000 and $7.4 million for
the years ended December 31, 1993, 1994 and 1995, respectively, and a net loss
of $388,000 for the six-month period ended June 30, 1996. For the year ended
December 31, 1995, the net loss includes an impairment loss of $6.6 million
related to a writedown of goodwill in connection with the adoption of Statement
of Financial Accounting Standards ("SFAS") No. 121. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Results of
Operations -- Year Ended December 31, 1995 Compared to Year Ended December 31,
1994." No assurance can be given that the Company will not continue to incur
losses in future periods.
ABSENCE OF COMBINED OPERATING HISTORY
As a result of the Company's acquisitions of the Reid Center and
substantially all the assets of MidTex (the "Acquisitions"), the number of beds
under the Company's management has almost doubled since December 31, 1995. Prior
to the Acquisitions, the Reid Center was operated as a nonprofit organization,
and substantially all the MidTex employees were employed by the City of Big
Spring, Texas. Consequently, no assurance can be given that the Company will be
able to successfully integrate the operations and personnel of the Reid Center
and MidTex with those of the Company on a profitable basis, and the pro forma
financial information of the Reid Center and MidTex may not be indicative of the
future financial condition or performance of those entities when combined with
the Company. See "Pro Forma Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General." The
inability of the Company to successfully integrate the businesses and operations
of the Reid Center and MidTex could have a material adverse effect on the
Company's financial condition and results of operations.
REVENUE AND PROFIT GROWTH DEPENDENT ON EXPANSION
The internal growth of the Company will depend on its ability to obtain
additional management contracts for privatized correctional and detention
facilities. The Company's ability to obtain new contracts will depend on the
extent to which federal, state and local governmental agencies turn to the
private sector in general and the Company in particular for the management of
new or existing facilities or the rehabilitation or expansion of existing
facilities. Additionally, since contracts to operate existing public facilities
have historically not been offered to private operators, the Company's growth
rate will generally be heavily dependent on the construction and operation of
new correctional and detention facilities. Because correctional and detention
services are essential public services, governmental agencies (and, in many
states, state legislatures as well) will have to be persuaded that privatization
will result in high-quality services at less cost than that which the agencies
themselves could provide. The Company's ability to obtain new contracts also
will depend on the extent to which the Company is able to secure awards in
competition with other private-sector providers. Factors that will affect the
Company's ability to compete effectively in bidding against other providers will
include (i) the price and other terms of the Company's bids, (ii) the financial
ability of the Company to make capital investments or post bonds or other credit
support which may be required and (iii) particularly in the case of secure adult
facilities, the extent to which the Company is perceived as a credible, reliable
alternative to other providers, including the two companies now holding the
major share of contracts for currently privatized facilities. Prior to 1995, the
Company had limited success in obtaining new management contracts, and the
Company's success for the most part was confined to contracts for management of
pre-release centers. No assurance can be given that the Company will be able to
obtain additional contracts to develop or operate new facilities on favorable
terms.
7
ACQUISITION RISKS
The Company's business strategy includes growth through acquisitions. This
strategy presents risks that, singly or in any combination, could materially
adversely affect the Company's business and financial performance. These risks
include the possibility of the adverse effect of acquisitions on existing
operations of the Company, the diversion of management attention and resources
to acquisitions, the dependence on retaining key personnel, the contingent and
latent risks associated with the past operations of, and other unanticipated
problems arising in, acquired businesses and the possible adverse earnings
effects resulting from the amortization of goodwill and other intangible assets.
For example, in 1995 the Company recognized an impairment loss of $6.6 million
to write down goodwill associated with the purchase of Eclectic Communications,
Inc. and a related company (collectively, "Eclectic") in March 1994. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Year Ended December 31, 1995 Compared to
Year Ended December 31, 1994." The success of the Company's acquisition strategy
will depend on the extent to which it is able to acquire, successfully absorb
and profitably operate additional businesses, and no assurance can be given that
the Company's strategy will succeed. In addition, no assurance can be given that
the Company can acquire additional businesses at prices and on terms the Company
deems reasonable. In this regard, the Company likely will be competing with
other potential acquirers, some of which are larger and have greater resources
than the Company, and the cost of acquiring businesses could increase
materially. NEED FOR ADDITIONAL FINANCING
The Company's ability to compete effectively in bidding for new contracts
will depend on certain factors, including, in certain circumstances, the ability
of the Company to make capital investments and finance construction costs
relating to institutional contract awards. In addition, the Company's
acquisition strategy will require the Company to obtain financing for such
acquisitions on terms the Company deems acceptable. The Company currently
intends to use debt to finance such activities although, in certain
circumstances, the Company may use shares of its Common Stock in making future
acquisitions. No assurance can be given that the Company will be able to obtain
debt financing on terms it considers acceptable or in the amounts it would need
to finance construction of new facilities or acquisitions. The extent to which
the Company will be able or willing to use Common Stock as a financing source
for acquisitions will depend on its market value from time to time and the
willingness of potential sellers to accept it as full or partial payment. The
use of a significant amount of debt financing would increase interest expense
and could adversely affect operating results. In the event the Company issues
additional Common Stock in connection with future acquisitions, purchasers of
Common Stock in the Offering may experience further dilution in the net tangible
book value per share of the Common Stock.
The Company is currently seeking to obtain a new credit facility (the "New
Credit Facility") upon completion of the Offering. The New Credit Facility,
together with cash provided from operations, is anticipated to provide
sufficient liquidity to meet the Company's working capital requirements over the
next 24 months. No assurance can be given, however, that the Company will be
able to enter into the New Credit Facility on terms the Company deems
acceptable.
FACILITY OCCUPANCY LEVELS AND CONTRACT DURATION
A substantial portion of the Company's revenues are generated under
facility management contracts that specify a rate per day per inmate ("per diem
rate"), while a substantial portion of the Company's cost structure is fixed.
Under a per diem rate structure, a decrease in occupancy rates would cause a
decrease in revenues and profitability. For each of its facilities, the Company
is, therefore, dependent on a single contracting governmental agency (or, in the
case of four of its facilities, two contracting governmental agencies) to supply
the facility with a sufficient number of inmates to meet and exceed the
facility's break-even design capacities, and in most cases the applicable
governmental agency or agencies are under no obligation to do so. In most cases,
soliciting additional inmates from other governmental agencies to meet capacity
shortfalls in Company facilities is not a viable alternative. Moreover, because
many of the Company's facilities have inmates serving relatively short sentences
or only the last three to six months of
8
their sentences, the high turnover rate of inmates requires a constant influx of
new inmates from the relevant governmental agencies to provide sufficient
occupancies to achieve profitability. A failure of a governmental agency to
supply sufficient occupancies for any reason may cause the Company to forego
revenues and income. Moreover, occupancy rates during the "start-up" phase when
facilities are first opened typically result in capacity underutilization for a
one-to three-month period after the facilities first receive inmates. As a
result, as the Company opens or begins operating new facilities under new
contracts, there may be a delay in reaching sufficient occupancies to meet the
break-even level of the facilities' design capacities, and the Company may incur
operating losses at such new facilities until these occupancy levels are
reached.
The Company's facility management contracts typically have terms ranging
from one to five years, and renewal is at the option of the contracting
governmental agency. No assurance can be given that any agency will exercise a
renewal option in the future. Additionally, contracting governmental agencies
typically may terminate a facility contract without cause by giving the Company
adequate written notice. Any such termination could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Facility Management Contracts."
FIXED REVENUE STRUCTURE
Most of the Company's facility management contracts provide for payments to
the Company of either fixed per diem fees or per diem fees that increase by only
small amounts during the terms of the contracts. If, as a result of inflation or
other causes, the Company experiences increases in personnel costs (the largest
component of facility management expense) or other operating expenses at rates
faster than increases, if any, in per diem fees, then the Company's results of
operations would be adversely affected.
POSSIBLE LOSS OF LEASE RIGHTS
The site of the Airpark Unit (397 beds) and the Flightline Unit (560 beds)
of the Big Spring Facilities (1,305 beds) (the "Airpark / Flightline Site") is
part of a larger tract of land (the "Larger Tract"), which was formerly part of
a United States Air Force base conveyed to the City of Big Spring (the "City")
by the United States government in 1978. The document conveying the Larger Tract
to the City (the "Conveyance") contains certain restrictive covenants relating
to the use of the Larger Tract that apply to the City and its lessees and any
successors and assigns to the ownership of the Larger Tract. These restrictive
covenants include provisions generally requiring use of the Larger Tract for
public airport purposes unless otherwise consented in writing by the Federal
Aviation Administration (the "FAA"), requiring certain maintenance of facilities
on the Larger Tract and requiring the availability of the Larger Tract for use
by federal aircraft. The Conveyance also permits the United States government to
use the Larger Tract in the case of a national emergency and permits the FAA to
be furnished portions of the Larger Tract and any structures located thereon for
use in construction, operation or maintenance of facilities for air traffic
control activities. The Conveyance further provides that, at the option of the
grantor, title to the Larger Tract would revert to the grantor upon any breach
of the provisions of the Conveyance, following notice of breach by the FAA and a
60-day grace period to cure any such breach.
The FAA reviewed the operating agreement and the related agreements between
the City and the Company which permit the Company to assume the operation of the
Big Spring Facilities and advised the City in writing that it has no objections
to the execution thereof by the parties thereto. While the Company believes that
(i) the City is in substantial compliance with the terms of the Conveyance, and
(ii) even if not in substantial compliance, the FAA is aware of (and has not
objected to) all past and present uses of the Larger Tract by the City and its
lessees, the FAA could assert that such uses of the Larger Tract violate the
Conveyance. In addition, the City has used and leased, and may in the future use
or lease, other portions of the Larger Tract for other purposes with respect to
which the Company is not involved and may not be aware. The continued compliance
by the City of Big Spring (or its successors or assigns or other lessees) with
the terms of the Conveyance is not within the control of the Company, and any
breach by the City (or its successors or assigns or other lessees) could result
in reversion of title of all or a portion of the Larger Tract to the United
States government. The agreements between the Company and the City do not give
the
9
Company recourse against the City in the case of such a reversion. In addition,
the Company does not have any assurances from the FAA that it would give effect
to the Company's lease rights in the event of such a reversion. Accordingly, in
the case of a reversion of the Airpark / Flightline Site, or in any case in
which the United States government or the FAA has superior rights to use the
Airpark / Flightline Site, the continued ability of the Company to lease and use
the Airpark / Flightline Site could be subject to the discretion of the United
States government or the FAA. The inability of the Company to continue to
operate the Airpark/Flightline Site would have a material adverse effect on the
Company's financial condition and results of operations.
BUSINESS CONCENTRATION
Contracts with the FBOP, the California Department of Corrections ("CDC")
and the United States Marshals Service (the "U.S. Marshals Service") account for
substantially all the Company's revenues. The loss of, or a significant decrease
in, business from one or more of these governmental agencies would have a
material adverse effect on the Company's financial condition and results of
operations.
CONTRACTS SUBJECT TO GOVERNMENT FUNDING
The Company's facility management contracts are subject to either annual or
bi-annual governmental appropriations. A failure by a governmental agency to
receive such appropriations could result in termination of the contract by such
agency or a reduction of the management fee payable to the Company. In addition,
even if funds are appropriated, delays in payments may occur which could
negatively affect the Company's cash flow. See "Business -- Facility Management
Contracts." Furthermore, in certain cases the development and construction of
facilities to be managed by the Company are subject to obtaining permanent
facility financing. Such financing currently may be obtained through a variety
of means, including the sale of tax-exempt bonds or other obligations or direct
government appropriation. The sale of tax-exempt bonds or other obligations may
be adversely affected by changes in applicable tax laws or adverse changes in
the market for such securities.
The Company has in the past worked with governmental agencies and placement
agents to obtain and structure financing for construction of facilities. In some
cases, an unrelated special purpose corporation is established to incur
borrowings to finance construction and, in other cases, the Company directly
incurs borrowings for construction financing. A growing trend in the
privatization industry is the requirement by governmental agencies that private
operators make capital investments in new facilities and enter into direct
financing arrangements in connection with the development of such facilities.
There can be no assurance that the Company will have available capital if and
when required to make such an investment to secure a contract for developing a
facility. See "Business -- Facility Design, Construction and Finance."
GOVERNMENT REGULATION: OVERSIGHT, AUDITS AND INVESTIGATIONS
The Company's business is highly regulated by a variety of governmental
authorities which continuously oversee the Company's business and operations.
For example, the contracting governmental agency typically assigns full-time,
on-site personnel to institutional facilities to monitor the Company's
compliance with contract terms and applicable regulations. Failure by the
Company to comply with contract terms or regulations could expose it to
substantial penalties, including the loss of a management contract. In addition,
changes in existing regulations could require the Company to modify
substantially the manner in which it conducts business and, therefore, could
have a material adverse effect on the Company.
Additionally, the Company's contracts give the contracting agency the right
to conduct audits of the facilities and operations managed by the Company for
the agency, and such audits occur routinely. An audit involves a governmental
agency's review of the Company's compliance with the prescribed policies and
procedures established with respect to the facility. The Company also may be
subject to investigations as a result of an audit, an inmate's complaint or
other causes.
10
ACCEPTANCE OF PRIVATIZED CORRECTIONAL AND DETENTION FACILITIES
Management of correctional and detention facilities by private entities has
not achieved acceptance by many governmental agencies. Some sectors of the
federal government and some state governments are legally unable to delegate
their traditional management responsibilities for correctional and detention
facilities to private companies. The operation of correctional and detention
facilities by private entities is a relatively new concept, is not widely
understood and has encountered resistance from certain groups, such as labor
unions, local sheriff's departments and groups that believe correctional and
detention facility operations should be conducted only by governmental agencies.
Such resistance may cause a change in public and government acceptance of
privatized correctional facilities. In addition, changes in political parties in
any of the markets in which the Company operates could result in significant
changes in elected officials' previously established views of privatization in
such markets.
OPPOSITION TO FACILITY LOCATION AND ADVERSE PUBLICITY
The Company's success in obtaining new awards and contracts may depend in
part upon its ability to locate land that can be leased or acquired on
economically favorable terms by the Company or other entities working with the
Company in conjunction with the Company's proposal to construct and/or manage a
facility. Some locations may be in or near populous areas and, therefore, may
generate legal action or other forms of opposition from residents in areas
surrounding a proposed site. The Company's business is subject to public
scrutiny. In addition to possible negative publicity about privatization in
general, an escape, riot or other disturbance at a Company-operated facility or
another privately operated facility, or placement of one or more notorious
offenders or criminal or violent actions by inmates or residents at one of the
Company-operated institutional or pre-release facilities may result in publicity
adverse to the Company and its industry, which could materially adversely affect
the Company's business. In February 1996, four inmates escaped from the
Company's Donald W. Wyatt Federal Detention Facility in Central Falls, Rhode
Island (the "Wyatt Facility"). The inmates were apprehended within 48 hours.
Although the Company did not experience any material adverse effect on its
business or results of operations as a result of the escape from the Wyatt
Facility, should escapes occur in the future, no assurance can be given that
such escapes would not have a material adverse effect on the Company's business
or its results of operations.
POTENTIAL LEGAL LIABILITY
The Company's management of correctional, detention and pre-release
facilities exposes it to potential third-party claims or litigation by inmates
or other persons for personal injury or other damages resulting from contact
with Company-operated facilities, programs, personnel or inmates, including
damages arising from an inmate's escape or from a disturbance or riot at a
Company-operated facility. In addition, certain of the Company's correctional,
detention and pre-release centers (including certain of the Company's non-secure
facilities) contain a high-risk population, many of whom have been convicted of
or charged with violent offenses. As a result, certain inmates or residents at
Company-operated facilities could pose risks to the public at large for which it
may be alleged that the Company should be held liable. Moreover, the Company's
management contracts generally require the Company to indemnify the governmental
agency against any damages to which the governmental agency may be subject in
connection with such claims or certain liability risks faced by the Company,
including personal or bodily injury, death or property damage to a third party
if the Company is found to be negligent. Insurance is a pre-requisite for
obtaining and maintaining the Company's management contracts. While insurance is
currently readily available to the Company, there can be no assurance that
insurance will continue to be available on commercially reasonable terms or will
be adequate to cover all potential claims. See "Business -- Insurance." In
addition, the Company is involved in certain litigation matters resulting from
the ordinary course of business at its facilities. In the opinion of management
of the Company, the outcome of the proceedings to which the Company is currently
a party, in the aggregate, will not have a material adverse effect upon the
Company's operations or financial condition. See "Business -- Litigation."
11
COMPETITION
The Company competes with a number of companies, including, but not limited
to, Corrections Corporation of America ("CCA"), Wackenhut Corrections
Corporation ("WHC") and U.S. Corrections Corporation ("USCC"). At December 31,
1995, CCA and WHC accounted for more than 70% of the privatized secure adult
beds under contract in the United States, according to the 1995 Census.
Therefore, certain competitors of the Company are larger and may have greater
resources than the Company. The Company also competes in some markets with small
local companies that may have better knowledge of the local conditions and may
be better able to gain political and public acceptance. Although certain states
require substantial capital investments in new projects, other states may allow
potential competitors to enter the Company's business without substantial
capital investment or previous experience in the management of correctional and
detention facilities. In addition, the Company may compete in some markets with
governmental agencies that operate correctional and detention facilities. The
Company believes its industry is subject to consolidation on both a national and
a regional scale. Other companies having growth objectives similar to the
Company's objectives may enter the industry. These entrants may have greater
financial resources than the Company to finance acquisition and internal growth
opportunities. Consequently, the Company may encounter significant competition
in its efforts to achieve its growth strategy. See "Business -- Competition."
ECONOMIC RISKS ASSOCIATED WITH DEVELOPMENT ACTIVITIES
When the Company is engaged to act as project manager for the design and
construction of a facility, the Company typically acts as the primary contractor
and subcontracts with other parties that act as the general contractors. As
primary contractor, the Company is subject to the various risks of construction
(including shortages of labor and materials, work stoppages, labor disputes and
weather interference) which could cause construction delays, and the Company is
subject to the risk that the general contractor will be unable to complete
construction at the budgeted costs or to fund any excess construction costs.
Under such contracts the Company is ultimately liable for all late delivery
penalties and cost overruns.
DEPENDENCE ON EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The Company depends greatly on the efforts of its executive officers and
key personnel to obtain new contracts, to make acquisitions and to manage the
Company's operations. The loss or unavailability of any of the Company's
executive officers (David M. Cornell, Chairman of the Board, President and Chief
Executive Officer of the Company, Marvin H. Wiebe, Jr., Vice President of the
Company, and Steven W. Logan, Chief Financial Officer, Treasurer and Secretary
of the Company) could have an adverse effect on the Company. The Company's
ability to perform under current and new contracts will depend, in part, on its
ability to attract and retain additional qualified senior executives and
operating personnel. The Company currently has a search underway for a chief
operating officer. There is significant competition for qualified facility
administrators, managers, counselors and other key personnel, and no assurance
can be given that the Company will be successful in recruiting or training a
sufficient number of officers or employees of the requisite caliber to enable
the Company to operate its business and implement its growth strategy as
planned. See "Management."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE
SALE ON PRICE OF COMMON STOCK
Sales of a substantial number of shares of Common Stock in the public
market following the Offering, or the perception that such sales could occur,
could have an adverse effect on the market price of the Common Stock. Upon
completion of the Offering, 6,265,398 shares of Common Stock will be
outstanding, and 978,109 shares will be issuable upon exercise of outstanding
warrants and stock options. The 3,500,000 shares of Common Stock sold in the
Offering will be freely tradeable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"), except for
any shares purchased by an "affiliate" of the Company (as that term is defined
under the Securities Act), which will be subject to the resale limitations of
Securities Act Rule 144. Substantially all the remaining 3,743,507 outstanding
shares of Common Stock (including shares issuable upon exercise of outstanding
options and warrants) held by the Company's current stockholders will be
"restricted securities" (within the meaning of Rule 144) and, therefore, will
not be eligible for sale to the public unless they are sold in transactions
12
registered under the Securities Act or pursuant to an exemption from Securities
Act registration, including pursuant to Rule 144. The Company has agreed to
provide holders of 3,437,726 of these shares (including shares issuable upon
exercise of outstanding options and warrants) with certain rights to have their
shares registered under the Securities Act for public resale. See "Certain
Relationships and Related Party Transactions -- Registration Rights Agreement."
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register 880,000 shares of Common Stock reserved or to be
available for issuance pursuant to the Stock Option Plan.
The Company and persons who will beneficially own in the aggregate
3,556,393 shares of Common Stock (including shares issuable upon exercise of
outstanding options and warrants) upon completion of the Offering, including the
Company's directors and executive officers, have agreed not to offer or sell any
shares of Common Stock prior to the expiration of 180 days following the date of
this Prospectus without the prior written consent of Dillon, Read & Co. Inc.
("Dillon Read"), subject to certain exceptions. See "Underwriting."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, no public market for the Common Stock has existed,
and the initial public offering price, which will be determined by negotiation
between the Company and representatives of the Underwriters, may not be
indicative of the price at which the Common Stock will trade after the Offering.
See "Underwriting" for the factors that will be considered in determining the
initial public offering price. Application has been made for quotation of the
Common Stock on the Nasdaq National Market, but no assurance can be given that
an active trading market for the Common Stock will develop or, if developed,
continue after the Offering. The market price of the Common Stock after the
Offering may be subject to significant fluctuations from time to time in
response to numerous factors, including variations in the reported periodic
financial results of the Company, changing conditions in the economy in general
or in the Company's industry in particular and unfavorable publicity affecting
the Company or its industry. In addition, stock markets generally, and the stock
prices of competitors in the Company's industry, experience significant price
and volume volatility from time to time which may affect the market price of the
Common Stock for reasons unrelated to the Company's performance.
IMMEDIATE SUBSTANTIAL DILUTION
Purchasers of Common Stock in the Offering will experience an immediate and
substantial dilution of $ in the pro forma net tangible book value per share of
their investment. In the event the Company issues additional Common Stock in the
future, including Common Stock that may be issued in connection with future
acquisitions, purchasers of Common Stock in the Offering may experience further
dilution in the net tangible book value per share of the Common Stock. See
"Dilution."
POTENTIAL ADVERSE EFFECTS OF AUTHORIZED PREFERRED STOCK
The Company's Restated Certificate of Incorporation (the "Certificate of
Incorporation") will authorize the Board of Directors to issue, without
stockholder approval, one or more series of preferred stock having such
preferences, powers and relative, participating, optional and other rights
(including preferences over the Common Stock respecting dividends and
distributions and voting rights) as the Board of Directors may determine. See
"Description of Capital Stock -- Preferred Stock."
POTENTIAL ADVERSE EFFECTS OF CONTROL OF COMPANY BY EXISTING STOCKHOLDERS
Simultaneously with the completion of the Offering, certain current
stockholders of the Company (the "Applicable Stockholders"), who will
beneficially own in the aggregate approximately 44.7% of the outstanding Common
Stock assuming exercise of their outstanding stock options (and 36.8% of the
outstanding Common Stock if the Underwriters exercise their over-allotment
option in full), will enter into a stockholders agreement. The agreement will
provide that the Applicable Stockholders agree to vote all shares of Common
Stock owned by them to elect three directors out of a five-member Board of
Directors of the Company. The stockholders agreement will provide that the
number of directors may only be increased by vote of a majority of the Board of
Directors. Consequently, the Applicable Stockholders, through their Common Stock
holdings and representation on the Board of Directors of the Company, which will
initially include a majority of directors designated by the Applicable
Shareholders, will be able to exercise
13
significant influence over the policies and direction of the Company. The
stockholders agreement will terminate upon the first to occur of (i) four years
from the date of the completion of the Offering or (ii) the Applicable
Stockholders collectively owning less than 25% of the outstanding Common Stock.
The stockholders agreement will also terminate as to any Applicable Stockholder
upon such stockholder owning less than 5% of the outstanding Common Stock. See
"Certain Relationships and Related Party Transactions -- Stockholders Agreement"
and "Principal and Selling Stockholders."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,023,103 shares of
Common Stock offered by the Company hereby are estimated to be approximately $ ,
assuming an initial public offering price of $ per share and after deducting
underwriting discounts and commissions and estimated offering expenses. The
Company will not receive any of the net proceeds from the sale of Common Stock
by the Selling Stockholders.
Of the net proceeds received by the Company, approximately $33.7 million
will be used to repay all the Company's borrowings outstanding under a credit
agreement dated July 3, 1996 (the "1996 Credit Facility") with Internationale
Nederlanden (U.S.) Capital Corporation ("ING") and a short-term convertible note
dated July 3, 1996 and issued by the Company to ING (the "Convertible Bridge
Note"). Any remaining proceeds will be used for working capital and general
corporate purposes.
The Convertible Bridge Note has an outstanding principal amount of $6.0
million, bears interest at 9.5% per annum and matures December 30, 1996. If not
then paid and the conversion date is not extended, the Convertible Bridge Note
and any accrued interest thereon will convert into Common Stock at a conversion
rate of $5.64 per share. The Company used the proceeds of the Convertible Bridge
Note to finance a portion of the MidTex acquisition.
As of August 20, 1996, the outstanding indebtedness under the 1996 Credit
Facility totaled $27.7 million, of which $3.7 million will be due within one
year of the date of this Prospectus and the balance will be due in subsequent
installments with a final maturity date of December 31, 2002. As of August 20,
1996, the weighted average interest rate on the debt outstanding under the 1996
Credit Facility was approximately 10.0%. The Company used borrowings under the
1996 Credit Facility to refinance outstanding borrowings under a credit
agreement dated March 14, 1995, as amended (the "1995 Credit Facility"), to
finance a portion of the MidTex acquisition and for working capital. The Company
used borrowings under the 1995 Credit Facility for consolidation of various
prior debt facilities, expansion funding for new projects, the repurchase of
shares of Common Stock from a former officer of the Company, the acquisition of
the Reid Center and working capital purposes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock.
The Company currently intends to retain excess cash flow, if any, for use in the
operation and expansion of its business and does not anticipate paying cash
dividends on the Common Stock in the foreseeable future. The payment of
dividends is within the discretion of the Board of Directors and will be
dependent upon, among other factors, the Company's results of operations,
financial condition, capital requirements, restrictions, if any, imposed by
financing commitments and legal requirements. The Company expects to enter into
a new revolving credit facility that will contain restrictions on payment of
dividends. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
14
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company (i) as of June 30, 1996, (ii) on a pro forma consolidated basis to give
effect to the Acquisitions and the issuance by the Company of shares, and
options and warrants to purchase shares, of Class A Common Stock and Class B
Common Stock after June 30, 1996 and (iii) on such pro forma basis as adjusted
for the Reclassification, the exercise of outstanding stock options or warrants
relating to the shares of Common Stock to be sold by the Selling Stockholders in
the Offering and the sale of the 3,023,103 shares of Common Stock offered by the
Company hereby at an assumed offering price of $ per share (after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company) and the application of the net proceeds therefrom. See "Use of
Proceeds." As of or prior to the completion of the Offering, the Company will
effect the Reclassification, whereby each share of Class A Common Stock and
Class B Common Stock will be reclassified into one share of Common Stock. This
table should be read in conjunction with the Company's Consolidated Financial
Statements and the Notes thereto and "Pro Forma Financial Data" included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
---------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, including current portion:
1995 Credit Facility ................................................... $ 13,800 $ -- $ --
1996 Credit Facility ................................................... -- 29,324 --
Other .................................................................. 68 68 68
-------- -------- --------
Total long-term debt,
including current
portion ........................................................ 13,868 29,392 68
-------- -------- --------
Convertible Bridge Note ..................................................... -- 6,000 --
Stockholders' equity:
Preferred Stock, par value $.001
per share, 10,000,000 shares
authorized pro forma as adjusted,
none issued and outstanding ........................................... -- -- --
Common stock:
Class A Common Stock, par value $.001 per
share, 9,000,000 shares
authorized historical and pro
forma, 3,194,042 shares issued and
outstanding historical and
3,226,792 shares issued and
outstanding pro forma(1) ....................................... 3 3 --
Class B Common Stock, par value
$.001 per share, 3,000,000 shares
authorized historical and pro forma,
none issued and outstanding
historical and 277,441 shares
issued and outstanding pro forma(2) ............................ -- -- --
Common Stock, par value $.001
per share, 50,000,000
shares authorized pro forma
as adjusted, 6,820,398
shares issued and
outstanding(3) ................................................. -- -- 6
Additional paid-in capital ............................................. 7,008 7,893 43,999
Retained deficit ....................................................... (8,049) (8,049) (8,049)
Treasury stock (555,000 shares of
Class A Common Stock, at cost) ........................................ (2,603) (2,603) (2,603)
-------- -------- --------
Total stockholders' equity
(deficit) ...................................................... (3,641) (2,756) 33,353
-------- -------- --------
Total capitalization ......................................... $ 10,227 $ 32,636 $ 33,421
======== ======== ========
</TABLE>
- ------------
(1) Par value decreased from $.01 to $.001 per share on July 3, 1996. Excludes
147,062 shares (historical) and 134,312 shares (pro forma) of Class A Common
Stock reserved for issuance upon exercise of outstanding stock options and
warrants.
(2) The number of authorized shares of Class B Common Stock increased from
1,000,000 to 3,000,000 and par value decreased from $.01 to $.001 per share
on July 3, 1996. Excludes 717,500 shares (historical) and 1,106,859 shares
(pro forma) of Class B Common Stock reserved for issuance upon exercise of
outstanding stock options and warrants.
(3) Excludes 353,498 shares of Common Stock reserved for issuance after
completion of the Offering upon exercise of outstanding stock options
granted under the Stock Option Plan and 624,611 shares of Common Stock
reserved for issuance upon exercise of outstanding stock options and
warrants not included under the Stock Option Plan. See "Management -- Stock
Option Plan" and Note 4 of Notes to the Company's Consolidated Financial
Statements.
15
DILUTION
The deficit in the pro forma net tangible book value of the Common Stock as
of June 30, 1996 (pro forma for the Acquisitions) was $(2,832,000), or
approximately $ per share. Pro forma net tangible book value (deficit) per share
represents the amount of the Company's total tangible assets less total
liabilities, divided by the pro forma number of shares of Common Stock
outstanding. Pro forma net tangible book value (deficit) dilution per share
represents the difference between the amount per share paid by purchasers of
shares of Common Stock in the Offering and the pro forma net tangible book value
(deficit) per share of Common Stock immediately after completion of the
Offering. After giving effect to the sale by the Company of the 3,023,103 shares
of Common Stock offered hereby at the initial public offering price of $ per
share and after deducting the underwriting discounts and commissions and
estimated offering expenses payable by the Company, the pro forma net tangible
book value (deficit) of the Company as of June 30, 1996 would have been $ , or
approximately $ per share. This represents an immediate increase in pro forma
net tangible book value of $ per share to existing stockholders and an immediate
dilution in pro forma net tangible book value of $ per share to new investors in
the Offering.
The following table illustrates this per share dilution:
Public offering price per share......... $
Pro forma net tangible book value
(deficit) per share before
the Offering.......................... $
Increase per share attributable to new
investors.............................
---------
Pro forma net tangible book value per
share after the Offering..............
----------
Dilution per share to new investors..... $
==========
The following table sets forth, on an unaudited pro forma basis at June 30,
1996, the difference between the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share paid
by the existing holders of Common Stock and by the new investors, before
deducting the underwriting discounts and commissions and estimated offering
expenses payable by the Company at the initial public offering price of $ per
share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... % $ % $
New investors...........................
-------- ------- ----------- -------
Total.............................. % $ %
======== ======= =========== =======
</TABLE>
The foregoing table excludes 353,498 shares of Common Stock reserved for
issuance after completion of the Offering upon exercise of outstanding stock
options granted under the Stock Option Plan and 624,611 shares of Common Stock
reserved for issuance upon exercise of outstanding stock options and warrants
not included under the Stock Option Plan. See "Management -- Stock Option Plan"
and Note 4 of Notes to the Company's Consolidated Financial Statements.
16
PRO FORMA FINANCIAL DATA
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet as
of June 30,, 1996 and the unaudited pro forma condensed consolidated statements
of operations for the year ended December 31, 1995 and for the three months
ended June 30, 1996, reflect the consolidated financial position and results of
operations, respectively, of the Company and subsidiaries as if (i) the
Acquisitions, (ii) the issuance by the Company of shares, and options and
warrants to purchase shares, of Class A Common Stock and Class B Common Stock
after June 30, 1996, (iii) the Reclassification, (iv) the exercise of
outstanding stock options and warrants relating to the shares of Common Stock to
be sold by the Selling Stockholders in the Offering and (v) the Offering and the
application of the estimated net proceeds therefrom, had occurred, in the case
of the balance sheet, on June 30, 1996, and, in the case of the statements of
operations, on January 1, 1995. These statements do not purport to be indicative
of the consolidated results of operations of the Company that might have been
obtained had these events actually then occurred or of the Company's future
results.
The pro forma condensed consolidated financial statements are based on
certain assumptions and estimates which are subject to change.
17
CORNELL CORRECTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------- PRO FORMA PRO FORMA OFFERING
THE COMPANY MIDTEX ADJUSTMENTS FOR THE ACQUISITIONS ADJUSTMENTS
----------- ------- ----------- -------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............. $ 556 $ 952 $ (466)(1) $ 1,297 $ 500(9)
255(2) 685(10)
Receivables, net...................... 4,206 2,726 -- 6,932 --
Other current assets.................. 592 755 -- 1,347 --
----------- ------- ----------- -------- -----------
Total current assets........... 5,354 4,433 (211) 9,576 1,185
Property and equipment, net:
Prepaid facility use.................. -- -- 22,376(3) 22,376 --
Other................................. 4,441 22,127 (22,117)(4) 4,451 --
Other assets............................ 4,170 5 (2,182)(5) 1,993 (400)(9)
----------- ------- ----------- -------- -----------
Total assets........................ $13,965 $26,565 $ (2,134) $ 38,396 $ 785
=========== ======= =========== ======== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued
liabilities......................... $ 3,272 $ 2,022 $ -- $ 5,294 $ --
Current portion of capital lease
obligations......................... -- 1,254 (1,254)(6) -- --
Current portion of long-term debt..... 24 -- 3,743(7) 3,767 (3,743)(9)
----------- ------- ----------- -------- -----------
Total current liabilities...... 3,296 3,276 2,489 9,061 (3,743)
Long-term capital lease obligations..... -- 15,110 (15,110)(6) -- --
Other long-term liabilities............. 466 -- 466 --
Long-term debt, excluding current
portion............................... 13,844 -- 11,781(7) 25,625 (25,581)(9)
Convertible bridge note................. -- -- 6,000(7) 6,000 (6,000)(9)
Stockholders' equity (deficit).......... (3,641) 8,179 (8,179)(8) (2,756) 35,424(9)
885(2) 685(10)
----------- ------- ----------- -------- -----------
Total liabilities and
stockholders' equity......... $13,965 $26,565 $ (2,134) $ 38,396 $ 785
=========== ======= =========== ======== ===========
</TABLE>
PRO FORMA
AS ADJUSTED
FOR THE OFFERING
----------------
ASSETS:
Current assets:
Cash and cash equivalents............. $ 2,482
Receivables, net...................... 6,932
Other current assets.................. 1,347
--------
Total current assets........... 10,761
Property and equipment, net:
Prepaid facility use.................. 22,376
Other................................. 4,451
Other assets............................ 1,593
--------
Total assets........................ $ 39,181
========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued
liabilities......................... $ 5,294
Current portion of capital lease
obligations......................... --
Current portion of long-term debt..... 24
--------
Total current liabilities...... 5,318
Long-term capital lease obligations..... --
Other long-term liabilities............. 466
Long-term debt, excluding current
portion............................... 44
Convertible bridge note................. --
Stockholders' equity (deficit).......... 33,353
--------
Total liabilities and
stockholders' equity......... $ 39,181
========
See accompanying notes to unaudited pro forma
condensed consolidated balance sheet.
18
CORNELL CORRECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(1) Records the adjustment to eliminate cash not acquired in the MidTex
acquisition.
(2) Records the increase to equity for (i) the value of stock options granted
($630,000) and (ii) the proceeds upon the issuance of 90,331 shares to
existing shareholders ($255,000), both in connection with the financing for
the MidTex Acquisition.
(3) Reflects an allocation of $22.4 million of the purchase price to property
and equipment for the Company's prepaid right to use the three detention
facilities retained by the City of Big Spring for 19, 20 and 23 years,
respectively, plus three five-year extensions, which may be exercised
unilaterally by the Company.
(4) Records a reduction in net property and equipment of $22.1 million due to
the elimination of capital leases related to the three detention facilities
(see Note 7 below).
(5) Reflects an adjustment to eliminate $2.2 million of deferred MidTex
acquisition costs.
(6) Records the elimination of capital leases of $1.3 million (current) and
$15.1 million (long-term) resulting from the MidTex acquisition.
(7) Reflects the increase in long-term debt of $21.5 million, which relates to
financing the MidTex acquisition.
(8) Records the elimination of net assets of MidTex prior to the acquisition.
(9) Records the sale of 3,023,103 shares of Common Stock, par value $.001 per
share, at $13.00 per share, net of estimated aggregate offering expenses of
$3.5 million, the use of $35.3 million of the net proceeds thereof to repay
outstanding indebtedness, and the use of the remaining proceeds of $500,000
as an increase to cash. Deferred offering costs of $400,000 as of June 30,
1996 are reclassified to equity.
(10) Records the assumed proceeds on exercise of stock options and warrants by
certain Selling Stockholders concurrent with the initial public offering.
Reference is made to Note 7 of Notes to the Company's Consolidated
Financial Statements for a summary of the consideration paid and estimated fair
market value of the assets acquired and liabilities assumed related to the
MidTex and Reid Center acquisitions.
19
CORNELL CORRECTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------
REID PRO FORMA PRO FORMA OFFERING
THE COMPANY MIDTEX CENTER ADJUSTMENTS FOR THE ACQUISITIONS ADJUSTMENTS
----------- ------- ------- ----------- -------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ $ 20,692 $14,682 $ 3,342 $ -- $ 38,716 $ --
Operating expenses...................... 16,351 9,007 3,562 164(1) 30,327 --
1,527(2)
(284)(3)
Depreciation and amortization........... 673 682 71 (203)(4) 1,247 --
(6)(5)
30(6)
----------- ------- ------- ----------- -------------------- -----------
Contribution from operations... 3,668 4,993 (291) (1,228) 7,142 --
General and administrative expenses..... 3,531 1,527 -- (1,527)(2) 3,531 300(10)
----------- ------- ------- ----------- -------------------- -----------
Income (loss) from operations before
impairment loss....................... 137 3,466 (291) 299 3,611 (300)
Impairment loss on long-lived assets.... 6,600 -- -- -- 6,600 --
----------- ------- ------- ----------- -------------------- -----------
Income (loss) from operations........... (6,463) 3,466 (291) 299 (2,989) (300)
Interest expense........................ 1,115 1,456 -- 329(7) 3,109 (3,109)(11)
209(8)
Interest income......................... (136) (9) -- -- (145) --
----------- ------- ------- ----------- -------------------- -----------
Income (loss) before
provision for income taxes... (7,442) 2,019 (291) (239) (5,953) 2,809
Provision for income taxes.............. -- -- -- 390(9) 390 1,067(9)
----------- ------- ------- ----------- -------------------- -----------
Net income (loss)....................... $ (7,442) $ 2,019 $ (291) $ (629) $ (6,343) $ 1,742
=========== ======= ======= =========== ==================== ===========
Earnings (loss) per share............... $ (1.80) $ (1.53)
=========== ====================
Number of shares used in per share
computation (thousands)............... 4,143 4,143
=========== ====================
</TABLE>
PRO FORMA
AS ADJUSTED
FOR THE OFFERING
----------------
Revenues................................ $ 38,716
Operating expenses...................... 30,327
Depreciation and amortization........... 1,247
----------------
Contribution from operations... 7,142
General and administrative expenses..... 3,831
----------------
Income (loss) from operations before
impairment loss....................... 3,311
Impairment loss on long-lived assets.... 6,600
----------------
Income (loss) from operations........... (3,289)
Interest expense........................ --
Interest income......................... (145)
----------------
Income (loss) before
provision for income taxes... (3,144)
Provision for income taxes.............. 1,457
----------------
Net income (loss)....................... $ (4,601)
================
Earnings (loss) per share............... $ (.64)
================
Number of shares used in per share
computation (thousands)............... 7,166
================
See accompanying notes to unaudited pro forma condensed
consolidated statements of operations.
20
CORNELL CORRECTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
REID PRO FORMA PRO FORMA OFFERING
THE COMPANY MIDTEX CENTER ADJUSTMENTS FOR THE ACQUISITIONS ADJUSTMENTS
----------- ------ ------ ----------- -------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ $11,337 $8,603 $1,131 $ -- $ 21,071 $ --
Operating expenses...................... 9,461 5,774 997 108(1) 17,012 --
672(2)
Depreciation and amortization........... 188 407 22 (77)(4) 556 --
1(5)
15(6)
----------- ------ ------ ----------- -------- -----------
Contribution from operations............ 1,688 2,422 112 (719) 3,503 --
General and administrative expenses..... 1,629 672 -- (672)(2) 1,629 150(10)
----------- ------ ------ ----------- -------- -----------
Income (loss) from operations........... 59 1,750 112 (47) 1,874 (150)
Interest expense........................ 498 843 -- 372(7) 1,796 (1,796)(11)
83(8)
Interest income......................... (51) (14 ) -- -- (65) --
----------- ------ ------ ----------- -------- -----------
Income (loss) before provision for
income taxes.......................... (388) 921 112 (502) 143 1,646
Provision for income taxes.............. -- -- -- 64(9) 64 625(9)
----------- ------ ------ ----------- -------- -----------
Net income (loss)....................... $ (388) $ 921 $ 112 $(566) $ 79 $ 1,021
=========== ====== ====== =========== ======== ===========
Earnings (loss) per share............... $ (.11) $ .02
=========== ========
Number of shares used in per share
computation (thousands)............... 3,683 3,683
=========== ========
</TABLE>
PRO FORMA
AS ADJUSTED
FOR THE OFFERING
----------------
Revenues................................ $ 21,071
Operating expenses...................... 17,012
Depreciation and amortization........... 556
--------
Contribution from operations............ 3,503
General and administrative expenses..... 1,779
--------
Income (loss) from operations........... 1,724
Interest expense........................ --
Interest income......................... (65)
--------
Income (loss) before provision for
income taxes.......................... 1,789
Provision for income taxes.............. 689
--------
Net income (loss)....................... $ 1,100
========
Earnings (loss) per share............... $ .16
========
Number of shares used in per share
computation (thousands)............... 6,864
========
See accompanying notes to unaudited pro forma
condensed consolidated statements of operations.
21
CORNELL CORRECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(1) Records adjustments to operating expenses to reflect annual payments in
lieu of property taxes to the City of Big Spring, Texas resulting from the
acquisition of substantially all the assets of MidTex. Such payments were
not incurred by MidTex and were negotiated between the Company and the City
of Big Spring.
(2) Records reclassification of MidTex's general and administrative expenses to
operating expenses.
(3) Records an adjustment to reduce operating expenses for the compensation of
a MidTex executive less the cost of a management advisory services
consulting agreement.
(4) Records adjustments to depreciation and amortization as follows for MidTex:
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
(DOLLARS IN THOUSANDS)
Elimination of historical depreciation
and amortization expense.............. $(682) $ (407)
Amortization of prepaid facility use
costs................................. 479 330
------ ------
$(203) $ (77)
====== ======
(5) Records adjustments to depreciation for revised basis in depreciable assets
as follows for Reid Center:
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
(DOLLARS IN THOUSANDS)
Elimination of historical depreciation
expense............................... $ (71) $(22)
Depreciation expense for revised basis
in depreciable assets................. 65 23
----- -----
$ (6) $ 1
===== =====
(6) Records additional depreciation expense based upon the Company's revised
estimate of the useful lives of the Reid Center facilities from 30 to 20
years (facilities are currently 30 or more years old and in management's
opinion have a remaining life of approximately 20 years) as follows:
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
(DOLLARS IN THOUSANDS)
Elimination of historical depreciation
expense of the buildings.............. $ (55) $(27)
Depreciation expense based on revised
useful lives of the buildings......... 85 42
----- -----
$ 30 $ 15
===== =====
(7) Records additional interest expense on the bank borrowings incurred to
consummate the MidTex acquisition based on an average interest rate of 10%
on average total borrowings of $17.8 million and $24.3 million for the year
ended December 31, 1995, and for the six months ended June 30, 1996,
respectively. The assumed weighted average borrowings by MidTex for the
year ended December 31, 1995 were reduced by the cost of a new MidTex
facility which was placed in service during 1995.
(8) Records additional interest expense on the bank borrowings incurred to
consummate the Reid Center acquisition based on an average interest rate of
10% on average total borrowings of $2.1 million for the year ended December
31, 1995 and for the six months ended June 30, 1996.
_(9) Records adjustments to record income tax effects of the foregoing
adjustments.
(10) Records adjustments to increase general and administrative expenses of
$300,000 for the year ended December 31, 1995, and $150,000 for the six
months ended June 30, 1996, to reflect estimated cost increases associated
with the Company becoming publicly held.
(11) Reflects a reduction in interest expense of $3.1 million for the year ended
December 31, 1995, and $1.8 million for the six months ended June 30, 1996,
as a result of the repayment in full of borrowings outstanding under the
1996 Credit Facility and under the Convertible Bridge Note from the net
proceeds of the Offering. Reference is made to Note 7 of Notes to the
Company's Consolidated
Financial Statements for a summary of the consideration paid and estimated fair
market value of the assets acquired and liabilities assumed related to the
MidTex and Reid Center acquisitions.
In March 1996, MidTex amended its contract with the FBOP to decrease manday
per diem rates from $36.92 to $34.92. In connection with this decrease,
management anticipates a corresponding reduction in revenues. The Company's
negotiated purchase price for the acquisition of substantially all the assets of
MidTex took into consideration the per diem rate reduction. Management is
considering certain cost reduction strategies in connection with the MidTex
acquisition which are expected to substantially mitigate the reduction in
revenues. The impact on income from operations is not expected to be
significant.
22
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The selected consolidated financial data for the Company set forth below
with respect to the Statement of Operations Data and Balance Sheet Data as of
and for the five years ended December 31, 1995 is derived from the consolidated
financial statements of the Company, which statements have been audited by
Arthur Andersen LLP, independent public accountants, and of which the statements
relating to 1993, 1994 and 1995 are included elsewhere in this Prospectus. The
selected financial data with respect to the Statement of Operations Data and
Balance Sheet Data as of and for the six month periods ended June 30, 1995 and
1996 is derived from the unaudited consolidated financial statements of the
Company which, in the opinion of management of the Company, reflect all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of such data. The data for the six months ended June 30, 1996
is not necessarily indicative of the results that may be expected for the entire
year. The pro forma financial data of the Company as of and for the year ended
December 31, 1995 and the six months ended June 30, 1996 is derived from the pro
forma financial statements of the Company that appear elsewhere in this
Prospectus. The pro forma Statement of Operations Data gives effect to (i) the
Acquisitions, (ii) the issuance by the Company of shares, and options and
warrants to purchases shares, of Class A Common Stock and Class B Common Stock
after June 30, 1996, (iii) the Reclassification, (iv) the exercise of
outstanding stock options and warrants relating to the shares of Common Stock to
be sold by the Selling Stockholders in the Offering, and (v) the Offering and
the application of the estimated net proceeds therefrom to the Company, as if
such events had occurred on January 1, 1995. The pro forma Balance Sheet Data as
of June 30, 1996 gives effect to such events as if they had occurred on June 30,
1996. The pro forma financial information does not purport to represent what the
Company's results of operations or financial position actually would have been
had these events, in fact, occurred on the date or at the beginning of the
period indicated, nor are they intended to project the Company's results of
operations or financial position for any future date or period. The selected
consolidated financial data should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ------------
---------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED
YEAR ENDED DECEMBER 31, JUNE 30, DECEMBER 31,
----------------------------------------------------- -------------------- ------------
1991 1992 1993 1994(1) 1995 1995 1996 1995
--------- --------- --------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA: (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Occupancy fees................... $ -- $ -- $ 107 $ 15,389 $ 20,594 $ 10,104 $ 10,967 $ 37,229
Other income..................... 235 2,540 3,091 300 98 3 370 1,487
--------- --------- --------- --------- --------- --------- --------- ------------
Total revenues............... 235 2,540 3,198 15,689 20,692 10,107 11,337 38,716
Operating expenses................. -- -- 2,827 12,315 16,351 8,030 9,461 30,327
Depreciation and amortization...... 3 3 16 635 673 293 188 1,247
--------- --------- --------- --------- --------- --------- --------- ------------
Contribution from operations....... 232 2,537 355 2,739 3,668 1,784 1,688 7,142
General and administrative
expenses......................... 968 1,627 1,315 2,959 3,531 1,551 1,629 3,831
--------- --------- --------- --------- --------- --------- --------- ------------
Income (loss) from operations
before impairment loss........... (736) 910 (960) (220) 137 233 59 3,311
Impairment loss on long-lived
assets........................... -- -- -- -- 6,600(2) -- -- 6,600
--------- --------- --------- --------- --------- --------- --------- ------------
Income (loss) from operations...... (736) 910 (960) (220) (6,463) 233 59 (3,289)
Interest expense................... 7 -- -- 294 1,115 269 498 --
Interest income.................... (1) (30) (45) (138) (136) (70) (51) (145)
--------- --------- --------- --------- --------- --------- --------- ------------
Income (loss) before income
taxes............................ (742) 940 (915) (376) (7,442) 34 (388) (3,144)
Provision for income taxes(3)...... -- -- -- 101 -- -- -- 1,457
--------- --------- --------- --------- --------- --------- --------- ------------
Net income (loss).................. $ (742) $ 940 $ (915) $ (477) $ (7,442) $ 34 $ (388) $ (4,601)
========= ========= ========= ========= ========= ========= ========= ============
Earnings (loss) per share.......... $ (.29) $ .35 $ (.32) $ (.12) $ (1.80) $ .01 $ (.11) $ (.64)
========= ========= ========= ========= ========= ========= ========= ============
Number of shares used in per share
computation(4)................... 2,548 2,651 2,855 3,971 4,143 4,244 3,683 7,166
Supplemental earnings (loss) per
share(5)......................... $ (1.34) $ .02
========= =========
OPERATING DATA:
Beds under contract (end of
period).......................... -- -- 282 1,155 1,478 1,135 1,796 3,093
Contracted beds in operation (end
of period)....................... -- -- 282 1,155 1,135 1,135 1,561 2,750
Average occupancy based on
contracted beds in
operation(6)..................... -- -- -- 92.1% 98.9% 97.8% 95.8% 91.8%
BALANCE SHEET DATA:
Working capital (deficit).......... $ (293) $ 812 $ 810 $ 2,015 $ 1,525 $ 2,295 $ 2,058
Total assets....................... 44 1,300 2,048 13,218 7,854 13,921 13,965
Long-term debt..................... -- -- -- 3,447 7,649 4,685 13,868
Stockholders' equity (deficit)..... (289) 896 1,085 6,754 (3,277) 6,788 (3,641)
</TABLE>
SIX
MONTHS
ENDED
JUNE 30,
---------
1996
---------
STATEMENT OF OPERATIONS DATA:
Revenues:
Occupancy fees................... $20,701
Other income..................... 370
---------
Total revenues............... 21,071
Operating expenses................. 17,012
Depreciation and amortization...... 556
---------
Contribution from operations....... 3,503
General and administrative
expenses......................... 1,779
---------
Income (loss) from operations
before impairment loss........... 1,724
Impairment loss on long-lived
assets........................... --
---------
Income (loss) from operations...... 1,724
Interest expense................... --
Interest income.................... (65)
---------
Income (loss) before income
taxes............................ 1,789
Provision for income taxes(3)...... 689
---------
Net income (loss).................. $ 1,100
=========
Earnings (loss) per share.......... $ .16
=========
Number of shares used in per share
computation(4)................... 6,864
Supplemental earnings (loss) per
share(5).........................
=========
OPERATING DATA:
Beds under contract (end of
period).......................... 3,101
Contracted beds in operation (end
of period)....................... 2,866
Average occupancy based on
contracted beds in
operation(6)..................... 94.1%
BALANCE SHEET DATA:
Working capital (deficit).......... $ 5,443
Total assets....................... 39,181
Long-term debt..................... 68
Stockholders' equity (deficit)..... 33,353
- ------------
(1) Includes operations purchased by the Company on March 31, 1994.
(2) The impairment loss on long-lived assets relates to a writedown of goodwill.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations -- Year Ended December 31,
1995 Compared to Year Ended December 31, 1994."
(3) Although the Company incurred a loss for financial reporting purposes for
the year ended December 31, 1994, a provision was recognized for taxable
income resulting principally from adding back nondeductible amortization of
goodwill to the loss for financial reporting purposes. There was no
provision for income taxes for the year ended December 31, 1993 because the
Company was organized as a partnership prior to March 31, 1994.
(4) Prior to March 31, 1994, the Company was organized as a partnership. For
purposes of computing average shares outstanding for the period prior to
March 31, 1994, the partnership units were converted to common shares using
a one-to-one unit-to-share conversion ratio.
(5) Supplemental per share data is presented to show what the earnings (loss)
would have been if the repayment of debt with proceeds from the Offering had
taken place at the beginning of the respective periods.
(6) For any applicable facilities, includes reduced occupancy during the
start-up phase. See "Business -- Facility Management Contracts." For the
year ended December 31, 1993, occupancy did not commence until December
1993.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was formed in March 1994 as the successor to a partnership
co-founded by David M. Cornell, the Company's Chairman, Chief Executive Officer
and President. In March 1994, the Company acquired Eclectic, which began
developing non-secure pre-release facilities in California in 1977. The
acquisition of Eclectic added 11 privatized institutional and pre-release
facilities with an aggregate design capacity of 979 beds. The following table
sets forth the number of facilities under contract or award at the end of the
periods shown.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------- JUNE 30,
1993 1994 1995 1996
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Contracts (1)........................... 1 16 19 23
Facilities in operation................. 1 13 12 15
Design capacity of facilities in
operation............................. 302 1,281 1,347 1,809
Beds under contract (end of period)..... 282 1,155 1,478 1,796
Contracted beds in operation (end of
period)............................... 282 1,155 1,135 1,561
Average occupancy based on contracted
beds in operation(2).................. -- 92.1% 98.9% 95.8%
- ------------
</TABLE>
(1) Consists of facilities in operation, facilities under development and
facilities for which awards have been obtained.
(2) For any applicable facilities, includes reduced occupancy during the
start-up phase. See "Business -- Facility Management Contracts." For the
year ended December 31, 1993, occupancy did not commence until December
1993.
During 1996, the Company has added the management of 2,002 beds through
opening or contracting to open four new facilities (387 beds) and the
Acquisitions (1,615 beds). As of August 20, 1996, the Company has 24 contracts
to operate 20 private correctional, detention and pre-release facilities with an
aggregate design capacity of 3,349 beds. Of these facilities, 18 are currently
in operation (3,114 beds) and two are under development (235 beds). One of the
two facilities under development is scheduled to commence operations during the
fourth quarter of 1996, and the other is scheduled to commence operations during
the first quarter of 1997. In addition, as of August 20, 1996, the Company has
submitted written bids to operate four new projects with an aggregate design
capacity of 760 beds in response to governmental agencies' pending Requests For
Proposals ("RFPs").
The Company derives substantially all its revenues from operating
correctional, detention and pre-release facilities for federal and state
governmental agencies in the United States. Revenues for operation of
correctional, detention and pre-release facilities are recognized on a per diem
rate based upon the number of occupant days for the period. In addition,
contracts for seven facilities provide for direct reimbursement by the
contracting governmental agency of facility rent and certain types of insurance.
In 1992 and 1993, the Company recognized substantial development fees
related to the development, design and supervision of facility construction
activities. Since that time, competitive bidding practices in the industry have
required the Company to submit bids that include no fee or only a minimal fee
for development activities. Future development fee revenues are not anticipated
to be significant.
Factors which the Company considers in determining the per diem rate to
charge include (i) the programs specified by the contract and the related
staffing levels, (ii) wage levels customary in the respective geographic areas,
(iii) whether the proposed facility is to be leased or purchased and (iv) if the
contract is currently being operated by a competitor, the historical average
occupancy levels maintained or, if a new contract, the anticipated average
occupancy levels which the Company believes could reasonably be maintained.
The Company incurs all facility operating expenses, except for certain debt
service and lease payments with respect to two facilities for which the Company
has only a management contract. The Company owns two facilities, the Peter A.
Leidel Community Corrections Center (the "Leidel Center") and the Reid
24
Center, both located in Houston, Texas. In connection with the acquisition of
substantially all the assets of MidTex, and as part of the purchase price
therefor, the Company prepaid a majority of the facility use cost of the Big
Spring Facilities through at least the year 2030. See "Risk Factors -- Possible
Loss of Lease Rights."
Facility payroll and related taxes constitute the majority of operating
expenses. Other operating expenses consist of food, insurance, medical services,
supplies and maintenance and other general operating expenses. General and
administrative expenses consist primarily of salaries of the Company's corporate
and administrative personnel who provide senior management, accounting, finance,
personnel and other services and costs of developing new contracts.
Newly opened facilities are staffed according to contract requirements when
the Company begins receiving residents or inmates. Residents or inmates are
typically assigned to a newly opened facility on a structured basis over a
one-to three-month period. The Company may incur operating losses at new
facilities until break-even occupancy levels are reached. Quarterly results can
be substantially affected by the timing of the commencement of operations as
well as development and construction of new facilities and by expenses incurred
by the Company (including the cost of options to purchase or lease proposed
facility sites and the cost of engaging outside consultants and legal experts
related to submitting responses to RFPs).
Working capital requirements generally increase immediately prior to the
Company commencing management of a new facility as the Company incurs start-up
costs and purchases necessary equipment and supplies before facility management
revenue is realized.
As a result of the Company's existing indebtedness, including indebtedness
incurred in the acquisition of substantially all assets of MidTex, the Company
is incurring monthly interest expense of approximately $300,000. The Company
will utilize the net proceeds from the Offering to retire the outstanding
borrowings under the 1996 Credit Facility and the Convertible Bridge Note. See
"Use of Proceeds." Therefore, immediately following the consummation of the
Offering, the Company will have no significant debt. The substantial reduction
in outstanding indebtedness will substantially reduce interest expense and
improve the Company's results of operations.
RESULTS OF OPERATIONS
The Company's historical operating results reflect that the Company has
expanded its business since 1993 from correctional, detention and pre-release
facility development and consulting into operation of correctional, detention
and pre-release facilities. Material fluctuations in the Company's results of
operations are principally the result of the timing and effect of acquisitions
and the level of development activity conducted by the Company and occupancy
rates at Company-operated facilities. The Company's acquisitions to date have
been accounted for using the purchase method of accounting, whereby the
operating results of the acquired businesses have been reported in the Company's
operating results since the date of acquisition.
The Company earned its first occupancy fee revenue in December 1993 upon
the opening of the Wyatt Facility. The Company's operations grew significantly
with the March 1994 acquisition of Eclectic. See " -- General." The operations
of Eclectic were included in the Company's results of operations for nine months
in 1994 and a full twelve months in 1995. The Company's acquisition of the Reid
Center in May 1996 and MidTex in July 1996 will significantly increase 1996
revenues over 1995 and have a greater impact in 1997 once such operations are
included in the Company's reported results of operations for a full year.
The Company's contribution from operations as a percentage of revenues will
fluctuate depending on the relative mix of operating contracts among the
Company's three areas of operational focus. See "Business -- General." Since
non-secure pre-release facilities involve contracts with a fewer number of beds
than secure institutions, fluctuations in the occupancy levels in such
facilities have a more significant impact on their contribution margins.
25
The following table sets forth for the periods indicated the percentages of
total revenue represented by certain items in the Company's historical
consolidated statement of operations.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total revenues.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses...................... 88.4 78.5 79.0 79.4 83.5
Depreciation and amortization........... 0.5 4.0 3.3 2.9 1.6
--------- --------- --------- --------- ---------
Contribution from operations............ 11.1 17.5 17.7 17.7 14.9
General and administrative expenses..... 41.1 18.9 17.0 15.4 14.4
--------- --------- --------- --------- ---------
Income (loss) from operations before
impairment loss....................... (30.0) (1.4) 0.7 2.3 0.5
Impairment loss on long-lived assets.... -- -- 31.9 -- --
--------- --------- --------- --------- ---------
Income (loss) from operations........... (30.0) (1.4) (31.2) 2.3 0.5
Interest expense (income)............... (1.4) 1.0 4.8 2.0 3.9
--------- --------- --------- --------- ---------
Income (loss) before income taxes....... (28.6) (2.4) (36.0) 0.3 (3.4)
Provision for income taxes.............. 0.0 0.6 0.0 0.0 0.0
--------- --------- --------- --------- ---------
Net income (loss)....................... (28.6) (3.0) (36.0) 0.3 (3.4)
========= ========= ========= ========= =========
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
TOTAL REVENUES. Total revenues increased by 12.2% to $11.3 million for the
six months ended June 30, 1996 from $10.1 million for the six months ended June
30, 1995. The increase in occupancy fees of $863,000, or 8.5%, was due
principally to the opening of two new pre-release facilities during the first
quarter of 1996 and the acquisition of the Reid Center effective as of May 1,
1996. Revenues were lower than expected as a result of lower than anticipated
occupancy levels at the Wyatt Facility during the first quarter of 1996 and
certain pre-release facilities. The increase in other income for the six months
ended June 30, 1996 to $370,000 from $3,000 for the six months ended June 30,
1995 was due primarily to the recognition of the revenue related to a previously
reserved note receivable of $206,000 pertaining to 1994 operations of the Wyatt
Facility, the realization of which has improved from prior periods due to
payments received on the note and due to the additional operating experience
with the facility.
OPERATING EXPENSES. Operating expenses increased by 17.8% to $9.5 million
for the six months ended June 30, 1996 from $8.0 million for the six months
ended June 30, 1995. This increase is principally attributable to the opening of
two new pre-release facilities during the first quarter of 1996 and the
acquisition of the Reid Center as of May 1, 1996. As a percentage of revenues,
operating expenses increased to 83.5% from 79.4%. The increase in operating
expenses as a percentage of revenues is principally due to incurring fixed
operating costs while experiencing lower occupancy during start-up at one of the
new pre-release facilities and the unanticipated reduced occupancy at the Wyatt
Facility during the first quarter of 1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased
35.8% to $188,000 for the six months ended June 30, 1996 from $293,000 for six
months ended June 30, 1995. The decrease was primarily due to a reduction in
goodwill amortization of approximately $250,000 resulting from the writedown of
goodwill during 1995, offset in part by an accounting adjustment in the first
quarter of 1995 to adjust depreciation expense in prior periods, and to the
opening of a new pre-release facility in January 1996 and the acquisition of the
Reid Center in May 1996.
CONTRIBUTION FROM OPERATIONS. Contribution from operations decreased by
5.4% to $1.7 million for the six months ended June 30, 1996 from $1.8 million
for the six months ended June 30, 1995. As a percentage of revenues,
contribution from operations decreased to 14.9% from 17.7% due to incurring
fixed operating costs while experiencing lower occupancy during start-up at one
of the new pre-release facilities and reduced occupancy at the Wyatt Facility
during the first quarter of 1996 and certain other pre-release facilities.
26
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by 5.0% to $1.6 million for the six months ended June 30, 1996 from
$1.5 million for the six months ended June 30, 1995. As a percentage of
revenues, general and administrative expenses decreased to 14.4% from 15.4% due
principally to spreading fixed costs over a larger revenue base. Salary expense
increased by $95,000 or 18.4% for the six months ended June 30, 1996 compared to
the six months ended June 30, 1995. Development costs increased by $98,000 or
31.4% for the six months ended June 30, 1996 compared to the six months ended
June 30, 1995.
INTEREST. Interest expense, net of interest income, increased to $447,000
for the six months ended June 30, 1996 from $199,000 for the six months ended
June 30, 1995. The increase in net interest expense was principally due to
borrowings under the Company's 1995 Credit Facility related to the Company's
purchase of outstanding stock in November 1995, the construction and development
of the two new pre-release facilities which opened during the first quarter of
1996, and the acquisition of the Reid Center in May 1996.
INCOME TAXES. The Company did not recognize any provision for income taxes
due to a taxable loss in both periods. As of June 30, 1996, the Company had
recognized a deferred tax asset of $436,000. Management of the Company believes
that this deferred tax asset is realizable.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
TOTAL REVENUES. Total revenues increased 31.9% to $20.7 million for the
year ended December 31, 1995 from $15.7 million for the year ended December 31,
1994. The revenue increase was due principally to the recognition of occupancy
fees for a full 12 months in 1995 related to the Eclectic acquisition versus the
recognition of nine months in 1994. Additionally, an increase in occupancy fees
of approximately $1.1 million was attributable to the Wyatt Facility principally
as a result of a higher occupancy and per diem rate in 1995 compared to 1994.
OPERATING EXPENSES. Operating expenses increased 32.8% to $16.4 million for
the year ended December 31, 1995 from $12.3 million for the year ended December
31, 1994. The increase in operating expenses was due principally to the
recognition of operating expenses of Eclectic for a full 12 months in 1995. As a
percentage of revenues, operating expenses increased to 79.0% from 78.5%
principally for the same reason.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
6.0% to $673,000 for the year ended December 31, 1995 from $635,000 for the year
ended December 31, 1994. The increase was due principally to recognizing 12
months of goodwill amortization in 1995 as compared to nine months of goodwill
amortization in 1994 resulting from the acquisition of Eclectic, offset in part
by an accounting adjustment in the first quarter of 1995 to adjust depreciation
expense in prior periods.
CONTRIBUTION FROM OPERATIONS. Contribution from operations increased 33.9%
to $3.7 million for the year ended December 31, 1995 from $2.7 million for the
year ended December 31, 1994. As a percentage of revenues, contribution from
operations increased to 17.7% from 17.5%.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 19.3% to $3.5 million for the year ended December 31, 1995 from $3.0
million for the year ended December 31, 1994. The increase in general and
administrative expenses was principally due to the addition of the operations of
Eclectic and an increase in RFP and development costs. As a percentage of
revenues, general and administrative expenses decreased to 17.0% from 18.9% due
principally to spreading fixed costs over a larger revenue base. Salary expense
increased by $9,000 or 0.1% for the year ended December 31, 1995 compared to the
year ended December 31, 1994. Development costs increased by $457,000 or 113.9%
for the year ended December 31, 1995 compared to the year ended December 31,
1994.
IMPAIRMENT LOSS. Effective March 31, 1994, the Company recorded
approximately $7.5 million in goodwill related to the acquisition of Eclectic.
At the time of the acquisition, management of the Company believed that certain
of the Eclectic facilities would be expanded to add new beds which would have
resulted in significant additional revenue and contribution from operations. As
of December 31, 1994, the Company had obtained the needed permits and still
believed that the expansions were likely to occur. During 1995, the Company was
unable to secure approval for the expansions due primarily to lack of
27
anticipated additional appropriations from the contracting governmental
agencies. As of December 31, 1995, management of the Company reduced the
probability of expansion of the Eclectic contracts, which caused the
recoverability of goodwill to be uncertain, resulting in a writedown of $6.6
million. Consequently, after estimating the fair value of Eclectic's long-lived
assets as of December 31, 1995 on the basis of the present value of management's
estimated future cash flows from Eclectic's contracts as they currently exist,
the impairment loss represents the amount necessary to reduce the carrying
amounts of those assets to their fair value. As a result of the recognition of
the impairment loss, future goodwill amortization is expected to be reduced by
approximately $500,000 annually.
INTEREST. Interest expense, net of interest income, increased to $979,000
for the year ended December 31, 1995 from $156,000 for the year ended December
31, 1994. The increase resulted from the expensing of debt issuance costs and
commitment fees of $472,000 associated with the 1995 Credit Facility, the
incurrence of $4.0 million of debt and other long-term obligations in connection
with the acquisition of Eclectic and increased borrowings under the 1995 Credit
Facility to purchase treasury stock.
INCOME TAXES. There was no provision for income taxes for the year ended
December 31, 1995 due to a taxable loss. The Company recognized a provision for
income taxes of $101,000 for the year ended December 31, 1994, even though the
Company incurred a loss for financial reporting purposes in 1994, principally
because certain goodwill amortization contributing to the loss for financial
reporting purposes was not deductible for income tax purposes.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
REVENUES. Revenues increased 390.6% to $15.7 million for the year ended
December 31, 1994 from $3.2 million for the year ended December 31, 1993. The
revenue increase was principally due to the recognition of occupancy fees for
nine months of operations in 1994 for the facilities added as part of the
Eclectic acquisition in March 1994. Additionally, because the Wyatt Facility did
not begin operations until December 1993, Wyatt Facility occupancy fees for 1994
increased by approximately $3.5 million as compared to 1993. For the year ended
December 31, 1993, there were $3.0 million of procurement and preopening
revenues included in development fees and other income related to the
procurement and preopening activities of the Wyatt Facility.
OPERATING EXPENSES. Operating expenses increased 335.6% to $12.3 million
for the year ended December 31, 1994 from $2.8 million for the year ended
December 31, 1993. The increase in operating expenses was principally due to the
addition of the operations of Eclectic and to a full year of operating costs of
the Wyatt Facility. As a percentage of revenues, operating expenses decreased to
78.5% from 88.4% due principally to spreading fixed costs over a larger revenue
base.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$635,000 for 1994 from $16,000 in 1993. The increase was due to recognizing nine
months of goodwill amortization and depreciation in 1994 resulting from the
Eclectic acquisition.
CONTRIBUTION FROM OPERATIONS. Contribution from operations increased to
$2.7 million for 1994 from $355,000 for 1993. As a percentage of revenues,
contribution from operations increased to 17.5% from 11.1% principally due to
the addition of the operations of Eclectic in March 1994 and the inclusion of a
full year of operations of the Wyatt Facility.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 125.0% to $3.0 million for the year ended December 31, 1994 from $1.3
million for the year ended December 31, 1993. The increase was principally due
to the addition of the operations of Eclectic. As a percentage of revenues,
general and administrative expenses decreased to 18.9% from 41.1% due
principally to spreading fixed costs over a larger revenue base.
INTEREST. Interest expense was $294,000 for the year ended December 31,
1994 compared to no interest expense for the year ended December 31, 1993 due to
the incurrence of indebtedness related to the Eclectic acquisition. Interest
income increased to $138,000 for the year ended December 31, 1994 from $45,000
for the year ended December 31, 1993 due to the assumption of certain
interest-bearing receivables from the CDC in connection with the Eclectic
acquisition.
28
INCOME TAXES. As described above, the Company recognized a provision for
income taxes of $101,000 for the year ended December 31, 1994. There was no
provision for income taxes for the year ended December 31, 1993 because the
Company was organized as a partnership prior to March 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. The Company's primary capital requirements are for working
capital, start-up costs related to new operating contracts, furniture, fixtures,
and equipment, supply purchases, new facility renovations and acquisitions. Some
of the Company's management contracts have required the Company to make
substantial initial expenditures of cash in connection with the opening or
renovating of a facility. Many initial expenditures subsequently are fully or
partially recoverable as pass-through costs or are reimbursable from the
contracting governmental agency over the term of the contract.
WORKING CAPITAL. The Company's working capital increased to $2.1 million at
June 30, 1996 from $1.5 million at December 31, 1995. This increase was
principally due to an increase in receivables resulting from the acquisition of
the Reid Center in May 1996 and to financings under the 1995 Credit Facility for
the purchase and construction of a new pre-release facility that opened during
the first quarter of 1996. A portion of the construction costs were accrued as a
current liability at December 31, 1995. The Company's working capital decreased
to $1.5 million at December 31, 1995 from $2.0 million at December 31, 1994. The
decrease was principally due to an increase in accounts payable and accrued
liabilities to record incurred construction and development costs for the two
new pre-release facilities that opened during the first quarter of 1996.
EXISTING CREDIT FACILITIES. The Company's primary financing has been
provided under its 1995 Credit Facility, which the Company entered into on March
14, 1995. In connection with the acquisition of substantially all the assets of
MidTex, the Company entered into the 1996 Credit Facility and issued the
Convertible Bridge Note. The Convertible Bridge Note has an outstanding
principal amount of $6.0 million, bears interest at 9.5% per annum and matures
December 30, 1996. If not then paid and the conversion date is not extended, the
Convertible Bridge Note and any accrued interest thereon will convert into
Common Stock at a conversion rate of $5.64 per share. The Company used the
proceeds of the Convertible Bridge Note to finance a portion of the MidTex
acquisition. As of August 20, 1996, the outstanding indebtedness under the 1996
Credit Facility totaled $27.7 million, of which $3.7 million will be due within
one year of the date of this Prospectus and the balance will be due in
subsequent installments with a final maturity date of December 31, 2002. The
Company used borrowings under the 1995 Credit Facility for (i) consolidation of
various prior debt facilities, (ii) expansion funding for new projects, (iii)
the repurchase of shares of Common Stock from a former officer of the Company,
(iv) the acquisition of the Reid Center and (v) working capital purposes. The
Company used borrowings under the 1996 Credit Facility to refinance outstanding
borrowings under the 1995 Credit Facility, to finance a portion of the MidTex
acquisition and for working capital.
USE OF PROCEEDS. The Company will utilize the net proceeds from the
Offering to retire the outstanding borrowings under the 1996 Credit Facility and
the Convertible Bridge Note. See "Use of Proceeds." Therefore, immediately
following the consummation of the Offering, the Company will have no significant
debt.
CAPITAL EXPENDITURES. Management of the Company anticipates that the
capital requirements during the third and fourth quarters of 1996 for a
pre-release facility scheduled to commence operations during the third quarter
of 1996 will be approximately $500,000 and will be used for building renovations
and purchases of furniture and equipment. Capital expenditures for the six
months ended June 30, 1996 were $467,000 and related to completion of
construction and purchase of furniture and equipment for the two newly opened
pre-release facilities, and for normal replacement of furniture and equipment at
various facilities. Capital expenditures for the year ended December 31, 1995
were $1.2 million and related to the purchase and construction costs for the two
new pre-release facilities which opened during the first quarter of 1996 and
miscellaneous facility renovations and equipment. Capital expenditures for the
year ended December 31, 1994 were $167,000. The 1994 capital expenditures were
for furniture and equipment replacements at various facilities.
29
CASH USED IN OPERATING ACTIVITIES. The Company had net cash used in
operating activities of $1.2 million for the year ended December 31, 1995
primarily due to an increase in occupancy fees receivable and from debt issuance
costs related to the 1995 Credit Facility. The net cash used in operating
activities of $952,000 for the six months ended June 30, 1996 was primarily due
to a loss from operations and to the increase in receivables resulting from the
acquisition of the Reid Center in May 1996. Management of the Company believes
the retirement of all its outstanding debt from the net proceeds of the Offering
and the cash flows anticipated to be generated from operations, including recent
acquisitions, will result in future cash flows from operations sufficient to
meet the Company's current operating needs. The Company is currently seeking to
obtain the New Credit Facility upon completion of the Offering. The New Credit
Facility, together with cash provided from operations, is anticipated to provide
sufficient liquidity to meet the Company's working capital requirements over the
next 24 months. It is not anticipated that the New Credit Facility will provide
sufficient financing to finance construction costs related to future
institutional contract awards or significant future acquisitions. The Company
anticipates obtaining separate sources of financing to finance such activities.
See "Risk Factors -- Need for Additional Financing." INFLATION
Management of the Company believes that inflation has not had a material
effect on the Company's results of operations during the past three years.
However, most of the Company's facility management contracts provide for
payments to the Company of either fixed per diem fees or per diem fees that
increase by only small amounts during the terms of the contracts. Inflation
could substantially increase the Company's personnel costs (the largest
component of facility management expense) or other operating expenses at rates
faster than increases, if any, in per diem fees, thereby resulting in a
substantial adverse effect on the Company's results of operations.
30
BUSINESS
GENERAL
Based on the information in the 1995 Census regarding combined capacities
of adult, pre-release and juvenile facilities under contract with private
correctional and detention providers in the United States at December 31, 1995,
and after giving effect to the Acquisitions, the Company is one of the leading
providers of privatized correctional, detention and pre-release services in the
United States. The Company was incorporated in Delaware on March 31, 1994, and
is the successor to (i) The Cornell Cox Group, L.P., a Delaware limited
partnership formed in 1991 (the "Partnership") that began developing
institutional correctional and detention facilities in Massachusetts and Rhode
Island in 1991, and (ii) Eclectic, which began developing pre-release facilities
in California in 1977. The Company has rapidly expanded its operations through
acquisitions and internal growth and is currently developing or operating
facilities in California, Texas, Rhode Island, Utah and North Carolina. As of
August 20, 1996, the Company has 24 contracts to operate 20 private
correctional, detention and pre-release facilities with an aggregate design
capacity of 3,349 beds. Of these facilities, 18 are currently in operation
(3,114 beds) and two are under development (235 beds).
The Company provides to governmental agencies the integrated development,
design, construction and operation of facilities within three areas of
operational focus: (i) secure institutional correctional and detention services,
(ii) non-secure pre-release correctional services and (iii) juvenile
correctional and detention services. Institutional correctional and detention
services primarily consist of the operation of secure adult incarceration
facilities. Non-secure pre-release correctional services primarily consist of
providing pre-release and halfway house programs for adult inmates serving the
last three to six months of their sentences and preparing for re-entry into
society at large. The Company is currently developing and constructing a 160-bed
juvenile short-term correctional and detention facility scheduled to commence
operations in the first quarter of 1997. At the facilities it operates, the
Company generally provides secure incarceration and non-secure residential
services, institutional food services, certain transportation services, general
education programs (such as high school equivalency and English as a second
language programs), health care (including medical, dental and psychiatric
services), work and recreational programs and chemical dependency and substance
abuse programs. Additional services provided in the Company's pre-release
facilities typically include life skills and employment training and job
placement assistance. Juvenile services provided by the Company will include
medical, educational and counseling programs tailored to meet the special needs
of juveniles.
ACQUISITIONS HISTORY
In March 1994, the Company acquired Eclectic, the operator of 11 privatized
institutional and pre-release facilities in California with an aggregate design
capacity of 979 beds. Consideration for the acquisition of Eclectic was $10.0
million, consisting of $6.0 million in cash, $3.3 million of subordinated
indebtedness and $0.7 million of other long-term obligations.
In May 1996, the Company acquired the Reid Center, a 310-bed pre-release
facility located in Houston, Texas, for approximately $2.0 million. Included in
the acquisition were the Reid Center facility property and buildings, the
equipment, inventory and supplies used in the operation of the Reid Center
facility and the assignment of the Reid Center's contract with the Texas
Department of Criminal Justice ("TDCJ"). Following the consummation of the
acquisition, approximately 100 employees of the Reid Center became employees of
the Company. The Company believes that the Reid Center is the largest single
facility pre-release center in Texas and that its acquisition enhances the
Company's position as one of the leaders in providing pre-release services.
In July 1996, the Company completed the acquisition of substantially all
the assets of Midtex, the operator of the Big Spring Facilities, for an
aggregate purchase price of approximately $22.7 million. The City of Big Spring
has an Intergovernmental Agreement (the "IGA") with the FBOP to house up to
1,305 inmates at the Big Spring Facilities, and, as part of the acquisition,
MidTex assigned to the Company its rights under an operating agreement with the
City of Big Spring (the "Big Spring Operating Agreement")
31
to manage the Big Spring Facilities. The Big Spring Operating Agreement has a
base term of 20 years from the closing of the acquisition and three five-year
renewal options at the discretion of the Company. See "Risk Factors -- Possible
Loss of Lease Rights." The IGA has an indefinite term, although it may be
terminated or modified by the FBOP upon 90 days' written notice. Following
consummation of the MidTex acquisition, approximately 250 employees of the City
of Big Spring and MidTex became employees of the Company. The MidTex acquisition
more than doubled the number of institutional facility beds managed by the
Company, and the Company believes that the acquisition provides a basis for
continued expansion of the Company's institutional area of operational focus.
INDUSTRY AND MARKET
There is a growing trend in the United States toward privatization of
governmental correctional and detention services and functions. Generally, this
trend results from continuing pressures faced by governments to control costs
and improve service efficiency as a result of the rapidly growing inmate
population in the United States. Further, as a result of the number of crimes
committed each year and the corresponding number of arrests, incarceration costs
generally grow faster than other parts of government budgets. In an attempt to
address these pressures, governmental agencies are increasingly privatizing new
facilities.
According to reports issued by the BJS, the number of adult inmates in
United States federal and state prison facilities increased from 503,601 at
December 31, 1985 to 1,104,074 at June 30, 1995, an increase of more than 119%.
According to the 1995 Census, the design capacity of privately managed adult
correctional and detention facilities in the United States increased from 26
facilities with a design capacity of 10,973 beds at December 31, 1989 to 92
facilities with a design capacity of 57,609 beds at December 31, 1995. By
year-end 1995, according to the 1995 Census, numerous counties, various agencies
of the federal government and 20 states had awarded management contracts to
private companies. According to the 1995 Census, privatized facilities include
(i) correctional facilities operated for the FBOP and detention facilities
operated for the Immigration and Naturalization Service ("INS") and U.S.
Marshals Service, (ii) state prisons, pre-release correctional facilities,
intermediate sanction facilities, work program facilities and state jail
facilities operated for state agencies and (iii) city jail and transfer
facilities operated for local agencies. Even after such growth, according to the
1995 Census, less than five percent of adult inmates in United States
correctional and detention facilities were housed in privately-managed
facilities. There are also many privatized juvenile offender facilities. The
Company believes that the market for juvenile services is also growing rapidly
because of an increasing population of teenagers and an escalation of crime
rates and incidents of mental health problems among that population. In
addition, the Company believes that there is a growing trend toward
privatization of juvenile services by governmental agencies.
AREAS OF OPERATIONAL FOCUS
INSTITUTIONAL. The Company currently operates six facilities (2,165 beds)
that provide secure institutional correctional and detention services for
incarcerated adults. These facilities consist of: the three Big Spring
Facilities, medium and minimum security facilities operated primarily for the
FBOP; the Wyatt Facility, a medium and maximum security unit operated primarily
for the U.S. Marshals Service in Central Falls, Rhode Island; and two minimum
security facilities in California operated for the CDC.
The Company operates the Big Spring Facilities pursuant to the Big Spring
Operating Agreement between the Company and the City of Big Spring. The City of
Big Spring in turn is a party to the IGA with the FBOP for an indefinite term
with respect to the facilities. The INS and the U.S. Marshals Service also use
the facilities. Inmates include detainees held by the INS, adjudicated inmates
held by the INS who will be deported after serving their sentences and
adjudicated inmates held for the FBOP. These facilities are equipped with an
interactive satellite link to INS courtroom facilities and judges that should
allow processing of a high volume of INS detainees, while reducing the time,
effort and expense incurred in transporting inmates to offsite courtrooms.
The Wyatt Facility in Central Falls opened in 1993 and primarily houses
federal inmates awaiting adjudication under federal criminal charges. In
addition, the Wyatt Facility houses certain other inmates under a contract with
the Suffolk County, Massachusetts, Sheriff's Department. The Company's
California
32
facilities house primarily inmates sentenced by the State of California, most of
whom are non-violent offenders with sentences of up to two years.
Under its contracts, the Company provides a variety of programs and
services at its institutional adult incarceration facilities, including secure
incarceration services, institutional food services, certain transportation
services, general education programs (such as high school equivalency and
English as a second language programs), work and recreational programs and
chemical dependency and substance abuse programs.
NON-SECURE PRE-RELEASE. The Company's business historically centered around
the operation of non-secure pre-release facilities. The Company currently
operates or has contracts to operate 13 facilities (with an aggregate design
capacity of 1,024 beds) that provide non-secure pre-release correctional
services. Of these facilities, six are operated primarily for the FBOP, five are
operated primarily for the CDC, one is operated for the TDCJ and one will be
operated for the North Carolina Department of Corrections (the "NCDC"). Most
residents of these facilities are or will be serving the last three to six
months of their sentences and preparing for re-entry into society at large.
At its pre-release facilities, the Company typically provides non-secure
residential services, institutional food services, general education programs,
life skills and employment training, job placement assistance and chemical
dependency and substance abuse counseling. About 20% of the inmates at the FBOP
pre-release facilities in California, Utah and Texas are on home confinement;
monitoring is primarily done by required check-ins and by unscheduled visits to
places of residence and employment.
JUVENILE SERVICES. Eclectic historically operated juvenile facilities for
the INS, the FBOP and certain counties in the State of California. The Company
is currently developing and constructing a 160-bed juvenile short-term
correctional and detention facility for the State of Utah in Salt Lake City. The
facility is scheduled to commence operations during the first quarter of 1997.
The facility will primarily house pre-adjudicated juvenile detainees and
juveniles awaiting placement in long-term correctional facilities. The Salt Lake
City juvenile facility will include an interactive satellite link to juvenile
courtroom facilities and judges that should allow processing of a high volume of
juvenile detainees, while reducing the time, effort and expense incurred in
transporting detainees to offsite courtrooms. The Company intends to pursue
additional contract awards to provide juvenile detention and correctional
services, including contracts for specialized rehabilitation programs and
services for juveniles such as military style boot camps, wilderness programs
and secure education and training centers.
OPERATING STRATEGIES
The Company's objective is to enhance its position as one of the leading
providers of private correctional, detention and pre-release services. The
Company is commited to the following operating strategies:
PURSUE DIVERSE MARKETS. The Company intends to continue to diversify its
business within three areas of operational focus. Historically, the Company
primarily provided pre-release services and believes that it has a long-standing
reputation as an effective manager of such facilities. However, after giving
effect to the Company's acquisition of substantially all the assets of MidTex in
July 1996, a majority of the Company's facility capacity and revenues will be
concentrated in the institutional correctional and detention service area. In
addition, the Company is currently developing a juvenile correctional and
detention facility and intends to pursue additional contracts to provide
juvenile correctional and detention services. The Company believes that, by
being a diversified provider of services, the Company will be able to compete
for more types of contract awards and adapt to changes in demands within its
industry for varying categories of services.
DELIVER COST EFFECTIVE AND QUALITY MANAGEMENT PROGRAMS. The Company intends
to position itself as a low cost, high quality provider of services in all its
markets. The Company will focus on improving operating performance and
efficiency through standardization of practices, programs and reporting
procedures, efficient staffing and attention to productivity standards. The
Company also emphasizes quality of
33
services by providing trained personnel and effective programs designed to meet
the needs of contracting governmental agencies.
PROVIDE INNOVATIVE SERVICES. The Company intends to implement specialized
and innovative services to address unique needs of governmental agencies and
certain segments of the inmate population. For example, certain facilities of
the Company are equipped with interactive satellite links to courtrooms and
judges that should reduce the time, effort and expense related to transporting
inmates to offsite courtrooms. The Company also intends to actively pursue
contracts to provide services for specialized segments of the inmate population
categorized by age (such as services for aging inmates or juvenile offenders),
medical status, gender or security needs.
GROWTH STRATEGIES
The Company expects the growth in privatization of correctional, detention
and pre-release facilities by governmental agencies to continue in the
foreseeable future. By expanding the number of beds under contract, the Company
should be able to increase economies of scale and purchasing power and qualify
to be considered for additional contract awards. The Company will seek to
increase revenues by pursuing the following growth strategies:
BID FOR NEW CONTRACT AWARDS. The Company will selectively pursue
opportunities to obtain contract awards for new privatized facilities. As of
August 20, 1996, the Company has submitted written bids to operate four new
projects with an aggregate design capacity of over 760 beds. Awards for these
projects should be made by the applicable governmental agencies by the end of
1996. The Company is also currently considering five additional projects with an
aggregate design capacity of over 3,600 beds for which it may submit written
bids before the end of 1996.
INCREASE BED CAPACITY OF EXISTING FACILITIES. The Company has the potential
for substantial capacity expansion at certain existing facilities with modest
capital investment. As a result, the Company intends to pursue expansion of such
facilities by obtaining awards of additional or supplemental contracts to
provide services at these facilities.
PURSUE STRATEGIC ACQUISITIONS. The Company believes that the private
correctional and detention industry is consolidating. The Company believes that
the larger, better capitalized providers will acquire smaller providers that are
typically too undercapitalized to pursue the industry's growth opportunities.
The Company intends to pursue selective acquisitions of other operators or
developers of private correctional and detention facilities in institutional,
pre-release and juvenile areas of operational focus to enhance its position in
its current markets, to acquire operations in new markets and to acquire
operations that will broaden the types of services which the Company can
provide. The Company believes there are opportunities to eliminate costs through
consolidation and coordination of the Company's current and subsequently
acquired operations. As a public company, the Company will increase its access
to capital markets, allowing the Company to use various combinations of its
Common Stock, cash and debt financing to make additional acquisitions. The
Company has in the past engaged in preliminary discussions with several other
companies managing private correctional and detention facilities concerning the
acquisition of all or a portion of their operations, but no agreements have been
reached with respect to any such possible acquisitions. The timing, size and
success of the Company's acquisition program efforts and the associated
potential capital commitments are not predictable.
34
FACILITIES
As of August 20, 1996, the Company operates 18 facilities and has been
awarded contracts to operate two additional facilities currently under
development. In addition to providing management services, the Company has been
involved in the development, design and construction of many of these
facilities. The facilities currently under development are the Durham, North
Carolina facility, which is scheduled to commence operations during the fourth
quarter of 1996, and the Salt Lake City juvenile facility, which is scheduled to
commence operations during the first quarter of 1997. The following table
summarizes certain additional information with respect to contracts and
facilities under operation by the Company as of August 20, 1996:
<TABLE>
<CAPTION>
PRINCIPAL DESIGN
CONTRACTING CAPACITY INITIAL COMMENCEMENT
GOVERNMENT (NO. OF CONTRACT OF CURRENT TERM RENEWAL
FACILITY NAME AND LOCATION AGENCY BEDS)(1) DATE(2) CONTRACT (YEARS)(3) OPTION(4)
- ------------------------------------- ------------- -------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
SECURE INSTITUTIONAL CORRECTIONAL AND
DETENTION FACILITIES:
Baker Community Correctional Facility CDC 288 1987 7/92 5 None
Baker, California(5)
City of Big Spring Correctional FBOP (6) 397 (6) (6) (6) (6)
Center --
Airpark Unit
Big Spring, Texas
City of Big Spring Correctional FBOP (6) 560 (6) (6) (6) (6)
Center --
Flightline Unit
Big Spring, Texas
City of Big Spring Correctional FBOP (6) 348 (6) (6) (6) (6)
Center --
Interstate Unit
Big Spring, Texas
Donald W. Wyatt Federal Detention U.S. 302 1992 11/93 5 One
Facility of Central Falls Marshals Five-Year
Central Falls, Rhode Island (5) Service (7)
Leo Chesney Community Correctional CDC 270 1988 4/93 5 None
Facility
Live Oak, California(5)
NON-SECURE PRE-RELEASE FACILITIES:
Ben A. Reid Community TDCJ 310 1996 1/96 1 1/2 One
Correctional Center Unspecified
Houston, Texas Term
Durham Facility NCDC 75 1996 6/96 5 One
Durham, North Carolina Five-Year
El Monte Facility FBOP 52 1993 4/93 (8) (8)
El Monte, California(5)
Inglewood Men's Center CDC 53 1982 7/94 3 None
Inglewood, California(5)
Inglewood Women's Center CDC 27 1984 7/92 4 1/2 None
Inglewood, California(5)
Marvin Gardens Facility CDC 42 1981 7/94 3 None
Los Angeles, California(5)
Oakland Facility FBOP (9) 61 1981 9/93 (10) (10)
Oakland, California(5)
Peter A. Leidel Community FBOP 94 1996 1/96 1 1/2 Three
Correctional Center One-Year
Houston, Texas
Salt Lake City Facility FBOP (9) 58 1995 12/95 2 Three
Salt Lake City, Utah One-Year
San Diego Facility FBOP 50 1984 11/95 2 Three
San Diego, California(5) One-Year
San Francisco -- Indiana Street CDC 96 1990 7/94 3 None
Facility
San Francisco, California(5)
San Francisco -- Taylor Street FBOP (11) 81 1984 2/96 2 Three
Facility One-Year
San Francisco, California(5)
Santa Barbara Facility CDC (12) 25 1977 7/94 3 None
Santa Barbara, California(5)
JUVENILE FACILITY:
Salt Lake City Juvenile Detention State of 160 1996 6/96 3 None
Center Utah (13)
Salt Lake City, Utah
</TABLE>
(NOTES ON FOLLOWING PAGE)
35
- ------------
(1) Design capacity is based on the physical space available presently, or with
minimal additional expenditure, for inmate or residential beds in
compliance with relevant regulations and contract requirements. In certain
cases, the management contract for a facility provides for a different
number of beds.
(2) Date from which the Company, or its predecessor, has had a contract with
the contracting governmental agency on an uninterrupted basis.
(3) Substantially all contracts are terminable by the contracting government
agency for any reason upon the required notice to the Company. See "Risk
Factors -- Facility Occupancy Levels and Contract Duration."
(4) Except as otherwise noted, the renewal option, if any, is at the discretion
of the contracting government agency.
(5) Facility is accredited by the American Correctional Association.
(6) The City of Big Spring, Texas entered into the IGA with the FBOP for an
indefinite term (until modified or terminated) with respect to the three
Big Spring Facilities. The Airpark Unit began operation in February 1991,
the Flightline Unit began operation in February 1995, and the Interstate
Unit began operation in May 1989. The Big Spring Operating Agreement has a
term of 20 years with three five-year renewal options at the Company's
discretion, pursuant to which the Company will manage the three Big Spring
Facilities for the City of Big Spring.
(7) The U.S. Marshals Service entered into an intergovernmental agreement with
the Central Falls Detention Facility Corporation ("DFC") in August 1991 for
an indefinite term (until modified or terminated) with respect to the Wyatt
Facility. The DFC, in turn, entered into a Professional Management
Agreement with the Company for the Company to operate this facility
effective November 1993 for a term of five years, with one five-year
renewal option. In addition, pursuant to a contract between the DFC and the
Suffolk County, Massachusetts Sheriff's Department, entered into in March
1996, Massachusetts state inmates are housed under the Company's management
at this facility.
(8) The current contract term was less than one year, with an original
termination date of September 1993; the FBOP has exercised three of its
four one-year renewal options.
(9) In addition to its contract with the FBOP with respect to these facilities,
the Company has contracts with the Administrative Office of the United
States Courts, Pretrial Services ("Pretrial Services") to provide beds at
these facilities.
(10) The current contract term was two years, with an original termination date
of August 1995; the FBOP has exercised the first of its three one-year
renewal options.
(11) In addition to its contract with the FBOP with respect to this facility,
the Company has contracts with Pretrial Services and with the City of San
Francisco to provide beds at this facility.
(12) In addition to its contract with the CDC with respect to this facility, in
March 1996 the Company entered into a contract with the FBOP, with a term
of two years and three one-year renewal options, to provide beds at this
facility.
(13) Utah Department of Human Services, Division of Youth Corrections.
FACILITY MANAGEMENT CONTRACTS
The Company is compensated on the basis of the number of inmates held or
supervised under each of its facilities' management contracts. The Company's
existing facility management contracts generally provide that the Company will
be compensated at an occupant per diem rate. Such compensation is invoiced in
accordance with applicable law and is paid on a monthly basis. Under a per diem
rate structure, a decrease in occupancy rates would cause a decrease in revenues
and profitability. The Company is, therefore, dependent upon governmental
agencies to supply the Company's facilities with a sufficient number of inmates
to meet the facilities' design capacities, and in most cases such governmental
agencies are under no obligation to do so. Moreover, because many of the
Company's facilities have inmates serving relatively short sentences or only the
last three to six months of their sentences, the high turnover rate of inmates
requires a constant influx of new inmates from the relevant governmental
agencies to provide sufficient occupancies to achieve profitability. Occupancy
rates during the start-up phase when facilities are first opened typically
result in capacity underutilization for 30 to 90 days. After a management
contract has been awarded, the Company incurs facility start-up costs consisting
principally of initial employee training, travel and other direct expenses
incurred in connection with the contract. These costs vary by contract and can
range between $30,000 and $1.0 million. See "Risk Factors -- Facility Occupancy
Levels and Contract Duration."
All the Company's contracts are subject to legislative appropriations. A
failure by a governmental agency to receive appropriations could result in
termination of the contract by such agency or a reduction of the management fee
payable to the Company. To date, the Company has not lost a contract because
appropriations have not been made to a governmental agency, although no
assurance can be given that the
36
governmental agencies will continue to receive appropriations in all cases. See
"Risk Factors -- Contracts Subject to Government Funding."
The Company's contracts generally require the Company to operate each
facility in accordance with all applicable laws and regulations. The Company is
required by its contracts to maintain certain levels of insurance coverage for
general liability, workers' compensation, vehicle liability and property loss or
damage. The Company is also required to indemnify the contracting agency for
claims and costs arising out of the Company's operations, and in certain cases,
to maintain performance bonds.
The Company's facility management contracts typically have terms ranging
from one to five years, and many have one or more renewal options for terms
ranging from one to five years. Only the contracting governmental agency may
exercise a renewal option. To date, all renewal options under the Company's
management contracts have been exercised. However, in connection with the
exercise of the renewal option, the contracting governmental agency or the
Company typically has requested changes or adjustments to the contract terms.
Additionally, the Company's facility management contracts typically allow a
contracting governmental agency to terminate a contract without cause by giving
the Company written notice ranging from 30 to 180 days. To date, no contracts
have been terminated before expiration. See "Risk Factors -- Facility Occupancy
Levels and Contract Duration."
MARKETING
The Company's principal customers are the federal and state governmental
agencies responsible for correctional, detention and pre-release services. These
governmental agencies generally procure these services from the private sector
by issuing an RFP to which a number of companies may respond. Most of the
Company's activities in the area of securing new business are expected to be in
the form of responding to RFPs. As part of the Company's process of responding
to RFPs, management of the Company meets with appropriate personnel from the
requesting agency to best determine the agency's distinct needs. If the Company
believes that the project complies with its business strategy, the Company will
submit a written response to the RFP. When responding to RFPs, the Company
incurs costs, typically ranging from $10,000 to $75,000 per proposal, to
determine the prospective client's distinct needs and prepare a detailed
response to the RFP. The preparation of a response to an RFP typically takes
from five to 10 weeks. In addition, the Company may incur substantial costs to
(i) acquire options to lease or purchase land for a proposed facility and (ii)
engage outside consulting and legal expertise related to a particular RFP.
A typical RFP requires bidders to provide detailed information, including,
but not limited to, descriptions of the following: the services to be provided
by the bidder, the bidder's experience and qualifications, and the price at
which the bidder is willing to provide the services requested by the agency
(which services may include the renovation, improvement or expansion of an
existing facility or the planning, design and construction of a new facility).
Based on proposals received in response to an RFP, the governmental agency will
award a contract; however, the governmental agency does not necessarily award a
contract to the lowest bidder. In addition to costs, governmental agencies also
consider experience and qualifications of bidders in awarding contracts.
The marketing process for obtaining facility management contracts consists
of several critical events. These include issuance of an RFP by a governmental
agency, submission of a response to the RFP by the Company, the award of the
contract by a governmental agency and the commencement of construction or
operation of the facility. The Company's experience has been that a substantial
period of time may elapse from the initial inquiry to receipt of a new contract,
although, as the concept of privatization has gained wider acceptance, the
length of time from inquiry to the award of contract has shortened. The length
of time required to award a contract is also affected, in some cases, by the
need to introduce enabling legislation. The bidding and award process for an RFP
typically takes from three to nine months. Generally, if the facility for which
an award has been made must be constructed, the Company's experience has been
that management of a newly constructed facility typically commences between 12
and 24 months after the governmental agency's award.
37
The Company also at times receives inquiries from or on behalf of
governmental agencies that are considering privatization of certain facilities
or that have already decided to contract with private providers. When such an
inquiry is received, the Company determines whether there is a need for the
Company's services and whether the legal and political climate in which the
governmental agency operates is conducive to serious consideration of
privatization. The Company then conducts an initial cost analysis to further
determine project feasibility.
As of August 20, 1996, the Company has submitted written bids for operating
four new projects with an aggregate design capacity of 760 beds. Awards for
these projects should be made by the applicable governmental agencies by the end
of 1996. The Company is also currently considering five additional projects with
an aggregate design capacity of over 3,600 beds for which it may submit written
bids before the end of 1996.
When a contract requires construction of a new facility, the Company's
success depends, in part, upon its ability to acquire real property for its
facilities on desirable terms and at satisfactory locations. Management of the
Company expects that many such locations will be in or near populous areas and
therefore anticipates legal action and other forms of opposition from residents
in areas surrounding each proposed site. The Company may incur significant
expenses in responding to such opposition and there can be no assurance of
success. In addition, the Company may choose not to bid in response to an RFP or
may determine to withdraw a bid if legal action or other forms of opposition are
anticipated.
OPERATIONS
Pursuant to the terms of its management contracts, the Company is
responsible for the overall operation of its facilities, including staff
recruitment, general administration of the facilities, security and supervision
of the offenders and facility maintenance. The Company also provides a variety
of rehabilitative and educational programs at many of its facilities. Inmates at
most facilities managed by the Company may receive basic education through
academic programs designed to improve inmate literacy levels (including English
as a second language programs) and the opportunity to acquire General Education
Development certificates. At many facilities, the Company also offers vocational
training to inmates who lack marketable job skills. In addition, the Company
offers life skills, transition planning programs that provide inmates job search
training and employment skills, health education, financial responsibility
training and other skills associated with becoming productive citizens. At
several of its facilities, the Company also offers counseling, education and/or
treatment to inmates with chemical dependency or substance abuse problems.
The Company operates each facility in accordance with Company-wide policies
and procedures generally based on the standards and guidelines established by
the American Correctional Association ("ACA") Commission on Accreditation. The
ACA is an independent organization comprised of professionals in the corrections
industry which establishes guidelines and standards by which a correctional
institution may gain accreditation. The ACA standards, which are the industry's
most widely accepted correctional standards, describe specific objectives to be
accomplished and cover such areas as administration, personnel and staff
training, security, medical and health care, food service, inmate supervision
and physical plant requirements. Currently, 12 of the Company's facilities are
accredited by the ACA and the Company intends to seek ACA accreditation for
certain of its other facilities.
Internal quality control, conducted by senior facility staff and executive
officers of the Company, takes the form of periodic operational, programmatic
and fiscal audits; facility inspections; regular review of logs, reports and
files; and strict maintenance of personnel standards, including an active
training program. The requirements for training at the Company meet and often
exceed ACA standards. Each of the Company's facilities develops its own training
plan that is reviewed, evaluated and updated annually. Dedicated space and
equipment for training is provided and outside resources such as community
colleges are utilized in the training process. All correctional officers undergo
an initial 40-hour orientation upon their hiring and receive academy-level
training amounting to 120 hours and on-the-job training of up to 80 hours. Each
correctional officer also receives up to 40 hours of training and education
annually.
38
FACILITY DESIGN, CONSTRUCTION AND FINANCE
In addition to operating correctional facilities, the Company also provides
consultation and management services to governmental agencies with respect to
the development, design and construction of new correctional and detention
facilities and the redesign and renovation of older facilities. The Company has
consulted on and/or managed: (i) the development, design and construction of the
302-bed Wyatt Facility in Central Falls, Rhode Island; (ii) the development,
design and construction of a 1,140-bed multi-purpose, multi-jurisdictional
detention center in Plymouth, Massachusetts; (iii) the development of the
288-bed facility in Baker California; (iv) the development of the 270-bed
facility in Live Oak, California; (v) the development, design and construction
of the 58-bed FBOP facility in Salt Lake City, Utah; (vi) the development,
design and construction of the 94-bed Leidel Center in Houston, Texas; and (vii)
the development, design, and construction of the 160-bed Salt Lake City Juvenile
Detention Facility in Salt Lake City, Utah. Currently, the Company operates all
of the facilities it has developed, designed and constructed with the exception
of the detention center in Plymouth, Massachusetts, which is operated by the
Sheriff's Department of the County of Plymouth, Massachusetts.
The Company utilizes an experienced team of outside professional
architectural consultants as part of the group that participates from conceptual
design through final construction of a project. When designing a facility, the
Company's outside architects utilize, with appropriate modifications, prototype
designs the Company has previously used in developing projects. Management of
the Company believes that the use of such proven designs allows the Company to
reduce cost overruns and avoid construction delays. Additionally, the Company
designs its facilities with the intention to improve security and minimize the
number of guards or correctional officers needed to properly staff the facility
by enabling enhanced visual and electronic surveillance of the facility.
The Company may propose various construction financing structures to the
contracting governmental agencies. The governmental agency may finance, or the
Company may arrange for the financing of, the construction of such facilities
through various methods including, but not limited to, the following: (i) a
one-time general revenue appropriation by the governmental agency for the cost
of the new facility, (ii) general obligation bonds that are secured by either a
limited or unlimited tax levy by the issuing governmental entity or (iii) lease
revenue bonds or certificates of participation secured by an annual lease
payment that is subject to annual or bi-annual legislative appropriations. If
the project is financed using project-specific tax-exempt bonds or other
obligations, the construction contract is generally subject to the sale of such
bonds or obligations. Substantial expenditures for construction will not be made
on such a project until the tax-exempt bonds or other obligations are sold. If
such bonds or obligations are not sold, construction and management of the
facility will be delayed until alternate financing is procured or development of
the project will be entirely suspended. When the Company is awarded a facility
management contract, appropriations for the first annual or bi-annual period of
the contract's term have generally already been approved, and the contract is
subject to governmental appropriations for subsequent annual or bi-annual
periods. Of the 20 facilities the Company operates or has contracted to operate,
two are funded using one of the above-described financing methods, two are owned
by the Company and 16 are leased. Of the 16 leased facilities, three (the Big
Spring facilities) are operated under long-term leases ranging from 34 to 38
years including renewal options at the discretion of the Company. As part of the
purchase price for the MidTex acquisition, the Company prepaid a majority of the
facility costs related to the Big Spring Facilities through at least the year
2030. See "Risk Factors -- Possible Loss of Lease Rights."
The Company has in the past worked with governmental agencies and placement
agents to obtain and structure financing for construction of facilities. In some
cases, an unrelated special purpose corporation is established to incur
borrowings to finance construction and, in other cases, the Company directly
incurs borrowings for construction financing. A growing trend in the
privatization industry is the requirement by governmental agencies that private
operators make capital investments in new facilities and enter into direct
financing arrangements in connection with the development of such facilities.
There can be no assurance that the Company will have available capital if and
when required to make such an investment to secure a contract for developing a
facility.
39
COMPETITION
The Company competes with a number of companies, including, but not limited
to, CCA, WHC and USCC. At December 31, 1995, CCA and WHC accounted for more than
70% of the privatized secure adult beds under contract in the United States,
according to the 1995 Census. Therefore, certain competitors of the Company are
larger and may have greater resources than the Company. The Company also
competes in some markets with small local companies that may have better
knowledge of local conditions and may be better able to gain political and
public acceptance. In addition, the Company may compete in some markets with
governmental agencies that operate correctional and detention facilities. See
"Risk Factors -- Competition."
EMPLOYEES
At June 30, 1996, the Company had 373 full-time employees and 87 part-time
employees. After giving effect to the acquisition of substantially all the
assets of Midtex, at August 20, 1996, the Company had approximately 630
full-time employees and 110 part-time employees. Of such full-time employees,
approximately 25 were employed at the Company's corporate and administrative
offices in Houston, Texas and Ventura, California. The remainder of the
employees work at the Company's facilities. The Company employs management,
administrative and clerical, security, educational and counseling services,
health services and general maintenance personnel. The Company believes its
relations with its employees are good. From time to time, collective bargaining
efforts have begun at certain of the Company's facilities, although to date none
of the efforts has been successful. The Company expects such collective
bargaining efforts to continue.
REGULATIONS
The industry in which the Company operates is subject to federal, state and
local regulations administered by a variety of regulatory authorities.
Generally, prospective providers of correctional, detention and pre-release
services must comply with a variety of applicable state and local regulations,
including education, healthcare and safety regulations. The Company's contracts
frequently include extensive reporting requirements and require supervision with
on-site monitoring by representatives of contracting governmental agencies.
In addition to regulations requiring certain contracting governmental
agencies to enter into a competitive bidding procedure before awarding
contracts, the laws of certain jurisdictions may also require the Company to
award subcontracts on a competitive basis or to subcontract with businesses
owned by women or members of minority groups.
INSURANCE
The Company maintains a $5 million general liability insurance policy for
all its operations. The Company also maintains insurance in amounts it deems
adequate to cover property and casualty risks, workers' compensation and
directors' and officers' liability. There can be no assurance that the aggregate
amount and types of the Company's insurance are adequate to cover all risks it
may incur or that insurance will continue to be available in the future on
commercially reasonable terms.
The Company's contracts and the statutes of certain states in which the
Company operates typically require the maintenance of insurance by the Company.
The Company's contracts provide that, in the event that the Company does not
maintain such insurance, the contracting agency may terminate its agreement with
the Company. The Company believes that it is in compliance in all material
respects with respect to these requirements.
LITIGATION
The Company currently and from time to time is subject to claims and suits
arising in the ordinary course of business, including claims for damages for
personal injuries or for wrongful restriction of, or interference with, inmate
privileges. In the opinion of management of the Company, the outcome of the
40
proceedings to which the Company is currently a party will not have a material
adverse effect upon the Company's operations or financial condition.
PROPERTIES
The Company leases corporate headquarters office space in Houston, Texas
and an administrative office in Ventura, California. The Company also leases
space for 16 of the facilities it is currently operating or developing. In
connection with the acquisition of MidTex, and as part of the purchase price,
the Company prepaid a majority of the facility costs related to the Big Spring
Facilities through at least the year 2030. For information concerning lease
rights relating to a portion of the Big Spring Facilities, see "Risk Factors --
Possible Loss of Lease Rights."
The Company owns two facilities, the Leidel Center and the Reid Center,
both located in Houston, Texas. The Company is not required to lease space at
the Wyatt Facility, which is owned by the DFC, or the Salt Lake City juvenile
facility, which is owned by the County of Salt Lake and leased to the State of
Utah. For a list of the locations of each facility, see " -- Facilities."
41
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The following table sets forth the names, ages (as of August 20, 1996) and
positions of the Company's directors, the person nominated to become a director
of the Company upon completion of the Offering, the Company's executive officers
and certain other key employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
David M. Cornell........................ 61 Chairman of the Board, President and
Chief Executive Officer (1)
Marvin H. Wiebe, Jr..................... 49 Vice President (1)
Steven W. Logan......................... 34 Chief Financial Officer, Treasurer and Secretary (1)
Charles J. Haugh........................ 57 Executive Director of Facilities
Joseph Ponte............................ 49 Executive Facility Director
Laura Shol.............................. 41 Director of Community Corrections
Antonio Medellin........................ 52 Executive Facility Administrator
Irwin F. Roberts........................ 58 Executive Facility Administrator
Jose L. Valencia........................ 50 Executive Facility Administrator
Richard T. Henshaw III.................. 57 Director
Peter A. Leidel......................... 40 Director
Campbell A. Griffin, Jr................. 67 Director (2)
Tucker Taylor........................... 56 Director (2)
</TABLE>
- ------------
(1) Executive officer of the Company.
(2) Appointment will become effective upon completion of the Offering.
DAVID M. CORNELL co-founded a predecessor of the Company in 1991 and has
been the Chairman and Chief Executive Officer of the Company since its founding.
Previously, Mr. Cornell was Operations Manager -- Special Projects for the
Bechtel Group and Chief Financial Officer of its wholly owned subsidiary, Becon
Construction Company, from 1983 to 1990. Prior to joining the Bechtel Group, Mr.
Cornell served as President and Director of Tenneco Financial Services Inc., an
investment advisory firm, from 1981 to 1982. He also served as Executive Vice
President of Philadelphia Life Insurance Company and President of its
subsidiary, Philadelphia Life Asset Management Company from 1972 to 1981.
MARVIN H. WIEBE, JR., has been Vice President of the Company since the
Company acquired Eclectic in 1994 and was previously Vice President --
Administration and Finance, Vice President -- Secure Detention and Chief
Financial Officer of Eclectic, where he was employed for 11 years. Prior to
joining Eclectic, Mr. Wiebe served as Executive Director and Business
Administrator of Turning Point of Central California, Inc., a nonprofit provider
of correctional and substance abuse programs from 1975 to 1984. Mr. Wiebe has
served as President of the International Community Corrections Association
("ICCA") and as an auditor for the ACA Commission on Accreditation for
Corrections and is a member of the ICCA, the California Probation Parole &
Correctional Association and the ACA.
STEVEN W. LOGAN has been Chief Financial Officer, Treasurer and Secretary
of the Company since 1993. From 1984 to 1993, Mr. Logan served in various
positions with Arthur Andersen LLP, Houston, most recently as an Experienced
Manager in the Enterprise Group, a group specializing in emerging, high-growth
companies which Mr. Logan helped form in Houston in 1987. Mr. Logan is a
certified public accountant.
CHARLES J. HAUGH has been Executive Director of Facilities of the Company
since the Company acquired MidTex in July 1996. From 1988 to July 1996, Mr.
Haugh was Vice President of MidTex and Executive Director of Facilities of Big
Spring Correctional Center. Prior to joining MidTex, Mr. Haugh was involved in
consulting for correctional organizations as President of CJH Cortech, Inc. for
a year. From 1963 to 1988, Mr. Haugh served in numerous capacities for the FBOP,
including Special Assistant to
42
Director Administrator of Correctional Services Branch, Associate Warden, Chief
Correctional Supervisor and Correctional Officer. Mr. Haugh has been an auditor
for the ACA and is on the Board of Directors of various local organizations.
JOSEPH PONTE has served as the Executive Facility Director of the Wyatt
Facility since its opening in 1993. Mr. Ponte served as the Assistant Director
for Institutions and Operations for the Rhode Island Department of Corrections
from 1991 to 1993 and in various positions at facilities managed by the
Massachusetts Department of Corrections from 1969 to 1991, including
Superintendent, Director of Staff Development and Director of Operations.
LAURA SHOL has been Director of Community Corrections of the Company since
June 1996 and was Senior Regional Administrator of Eclectic from 1986 to June
1996. From 1982 to 1986, Ms. Shol was a Facility Director for Eclectic. Prior to
joining Eclectic, Ms. Shol was a Program Director with the Salvation Army, Inc.
ANTONIO MEDELLIN has been Executive Facility Administrator of the Company
since the Company acquired MidTex in July 1996. From April 1996 until July 1996,
he was a Facility Director and Administrator of MidTex. From 1971 to April 1996,
Mr. Medellin served in numerous capacities for the FBOP, including Associate
Warden, Executive Assistant, Captain, Lieutenant, Counselor and Correctional
Officer.
IRWIN F. ROBERTS has been Executive Facility Administrator of the Company
since the Company acquired MidTex in July 1996. Mr. Roberts was a Facility
Director and Administrator of MidTex from 1992 to July 1996 and was Chief of
Security at Big Spring Correctional Center from 1991 to 1992. From 1988 to 1991,
Mr. Roberts served as a Correctional Program Specialist and a Security Officer
with the United States Navy, and, from 1967 to 1988, he served in numerous
positions for the FBOP, including Captain, Lieutenant and Counselor.
JOSE L. VALENCIA has been Executive Facility Administrator of the Company
since the Company acquired MidTex in July 1996. From April 1996 to July 1996,
Mr. Valencia was a Facility Director and Administrator of MidTex. From 1976 to
April 1996, he served in numerous capacities for the FBOP, including Affirmative
Action Administrator, Associate Warden, Assistant Correctional Services
Administrator, Unit Manager, Correctional Supervisor and Correctional Officer.
RICHARD T. HENSHAW III has been a director of the Company since March 1994.
Mr. Henshaw has been a Senior Vice President of Charterhouse Group
International, Inc. ("Charterhouse"), a private investment firm specializing
in leveraged buy-out acquisitions, since 1991. Prior thereto, Mr. Henshaw was a
Senior Vice President of The Bank of New York.
PETER A. LEIDEL has been a director of the Company and its predecessor
since May 1991. Mr. Leidel is a partner of Dillon Read Venture Partners III,
L.P. and Concord Partners II, L.P. ("Concord II"), both private venture
capital funds managed by Dillon Read. Mr. Leidel is a Senior Vice President of
Dillon Read where he has been employed since 1983. Mr. Leidel is a director of
Willbros Group, Inc. and seven private companies.
CAMPBELL A. GRIFFIN, JR. will become a director of the Company effective
upon the completion of the Offering. Mr. Griffin joined the law firm of Vinson &
Elkins L.L.P. in 1957 and was a partner from 1968 to 1992. He was a member of
the Management Committee of Vinson & Elkins L.L.P. from 1981 to 1990 and the
Managing Partner of the Dallas office from 1986 to 1989. From 1991 to 1993, Mr.
Griffin served as an Adjunct Professor of Administrative Science at William
Marsh Rice University and, from 1993 to 1995, he was a Councilman for the City
of Hunters Creek Village. Mr. Griffin has been a director of various local
organizations and is an arbitrator for the American Arbitration Association, the
New York Stock Exchange and the National Association of Securities Dealers and a
member of the American, Texas and Houston Bar Associations.
TUCKER TAYLOR will become a director of the Company effective upon
completion of the Offering. Mr. Taylor has been Vice President of a division of
Columbia/HCA Healthcare System since 1994. From 1992 to 1994, he was Executive
Vice President for Marketing, Sales and Strategic Planning at Medical Care
43
America. Prior thereto, Mr. Taylor worked as a Marketing and Planning Consultant
from 1982 to 1990 and at Federal Express Corporation from 1974 to 1982. Mr.
Taylor currently serves on the Board of Directors of SuperShuttle.
Upon completion of the Offering, there will be two committees of the Board
of Directors: an Audit Committee and a Compensation Committee. The initial
members of the Audit Committee will be Mr. Leidel and Mr. Taylor. The Audit
Committee will recommend the appointment of indpendent public accountants to
conduct audits of the Company's financial statements, review with the
independent accountants the plan and results of the auditing engagement, approve
other professional services provided by the independent accountants and evaluate
the independence of the accountants. The Audit Committee will also review the
scope and results of procedures for internal auditing of the Company and the
adequacy of the Company's system of internal accounting controls. The initial
members of the Compensation Committee will be Mr. Griffin and Mr. Henshaw. The
Compensation Committee will approve, or in some cases recommend to the Board,
remuneration arrangements and compensation plans involving the Company's
directors, executive officers and certain other employees and consultants whose
compensation exceeds specified levels. The Compensation Committeee will also act
on the granting of stock options, including under the Stock Option Plan. The
members of the Audit and Compensation Committees will not be employees of the
Company.
DIRECTOR COMPENSATION
Directors who are employees of the Company will not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company (a "Nonemployee Director") and who is elected or appointed on or
after completion of the Offering will receive a fee of $1,000 for attendance at
each Board of Directors meeting and $500 for each committee meeting (unless held
on the same day as a Board of Directors meeting). Individuals who first become
Nonemployee Directors on or after completion of the Offering will receive a
grant of nonqualified options to purchase 15,000 shares of Common Stock under
the Stock Option Plan. Such options will vest 25% on the date of grant and the
remainder ratably over three years with a term of 10 years and a per share
exercise price equal to the fair market value of a share of Common Stock at the
date of grant (the initial public offering price in the Offering in the case of
Messrs. Griffin and Taylor). All directors are reimbursed for out-of-pocket
expenses incurred in attending meetings of the Board of Directors or committees
thereof and for other expenses incurred in their capacity as directors.
44
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth certain summary
information concerning the compensation paid or accrued by the Company during
the year ended December 31, 1995 to the Company's chief executive officer and
the other executive officer of the Company whose combined salary and bonus from
the Company during such period exceeded $100,000 (collectively, the "named
executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION(1) ------------------
---------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(2) UNDERLYING OPTIONS COMPENSATION(3)
- ---------------------------------------- ---------- ---------- ------------------ ---------------
<S> <C> <C> <C> <C>
David M. Cornell........................ $ 125,000 $ -- 137,110(4) $ 3,750
Chairman of the Board, President and
Chief Executive Officer
Marvin H. Wiebe, Jr..................... 90,500 82,475(5) -- 7,726(6)
Vice President
</TABLE>
- ------------
(1) Other annual compensation for each named executive officer during 1995 did
not exceed the lesser of $50,000 or 10% of the annual compensation earned by
such individual.
(2) The bonus amounts shown were paid in 1996 for the year ended December 31,
1995.
(3) The amounts shown represent contributions by the Company under its 401(k)
Profit Sharing Plan and Company payments of life insurance premiums.
(4) In November 1995, the Company granted options to purchase Class B Common
Stock (nonvoting, nondividend stock that will convert on a one-for-one basis
into Common Stock as of or prior to the completion of the Offering as part
of the Reclassification) to all of its stockholders, including Mr. Cornell,
based on each stockholder's equity interest in the Company, as adjusted by
agreement among certain stockholders. Each stockholder receiving options,
including Mr. Cornell, agreed to exercise such options on December 31, 1996
unless, on or prior to that date, the Company has repaid in full a certain
loan obtained by the Company under the 1996 Credit Facility. See "Certain
Relationships and Related Party Transactions -- Certain Equity
Transactions."
(5) Excludes $59,750 representing Mr. Wiebe's portion of an annual fixed
installment payment relating to the Eclectic acquisition.
(6) Mr. Wiebe elected, pursuant to his employment agreement with the Company, to
use a portion of the bonus he earned during the year ended December 31, 1995
to purchase Class A Common Stock at 90% of the fair market value of the
Class A Common Stock, as determined by the Board of Directors. The amount
includes the dollar value of the difference between the price paid by Mr.
Wiebe for the Class A Common Stock and the fair market value of the Class A
Common Stock, as determined by the Board of Directors.
Effective June 1, 1996, the Board of Directors of the Company approved
annual salaries of $200,000 and $130,000 for Mr. Cornell and Mr. Logan,
respectively, with respective bonuses of up to $50,000 and up to $20,000,
payable at the recommendation of the Compensation Committee and subject to the
discretion of a majority of the Nonemployee Directors.
45
OPTION GRANTS. The following table contains certain information concerning
options granted to the named executive officers during the year ended December
31, 1995.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------------- ANNUAL RATES OF
PERCENT OF STOCK PRICE
TOTAL APPRECIATION
OPTIONS GRANTED EXERCISE OR FOR OPTION TERM
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION ---------------------
NAME GRANTED(1) IN 1995 PER SHARE(2) DATE 5%(3) 10%(3)
- ---------------------------------------- ---------- --------------- ------------ ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
David M. Cornell........................ 137,110 68% $ 2.00 10/31/2002 $ 172,500 $437,000
Marvin H. Wiebe, Jr..................... -- -- -- -- -- --
</TABLE>
- ------------
(1) See Note 4 to the Summary Compensation Table.
(2) Prior to the Offering, there was no public market for Common Stock and,
therefore, the exercise price of the options was based upon the estimated
fair market value of the underlying Class B Common Stock as of the date of
grant as determined by the Board of Directors.
(3) Calculated based upon the indicated rates of appreciation, compounded
annually, from the date of grant to the end of the option term. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent on the actual performance of the Common Stock. There can be no
assurance that the amounts reflected in this table will be achieved.
1995 YEAR-END OPTION HOLDINGS. The following table summarizes the number
and value of the unexercised options to purchase Common Stock held by the named
executive officers at December 31, 1995. Neither of the named executive officers
exercised any stock options during 1995. The Company does not have any
outstanding stock appreciation rights or shares of restricted stock.
1995 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON
STOCK UNDERLYING UNEXERCISED
VALUE OF UNEXERCISED
OPTIONS HELD AT DECEMBER 31, IN-THE-MONEY OPTIONS
1995 HELD AT DECEMBER 31, 1995
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C>
David M. Cornell........................ 137,110(1) -- $ 0(2) --
Marvin H. Wiebe, Jr..................... -- -- -- --
</TABLE>
- ------------
(1) See Note 4 to the Summary Compensation Table.
(2) The exercise price of the options was based on the estimated fair market
value of the underlying Class B Common Stock as of November 1, 1995 as
determined by the Board of Directors of the Company. The Company believes
that the value of the Company remained constant between November 1, 1995 and
December 31, 1995 and that the value per share of Class B Common Stock at
December 31, 1995 equaled the per share exercise price of Mr. Cornell's
options.
EMPLOYMENT AGREEMENT
The Company entered into a three-year employment agreement with Mr. Wiebe
on March 31, 1994 in connection with the Company's acquisition of Eclectic.
Pursuant to the employment agreement, Mr. Wiebe serves as Vice President of the
Company (or in such executive office as the Company determines) for a base
salary of $90,500. In addition, under the employment agreement, Mr. Wiebe
receives a profit sharing bonus, an annual fixed installment payment of $50,000
through 1998 relating to the Eclectic acquisition and monthly interest of 0.5%
of the remaining unpaid annual fixed installment payments. Mr. Wiebe may use up
to 50% of his profit sharing bonus to purchase shares of Common Stock at a price
equal to 90% of the fair market value of such stock and may use up to 50% of his
remaining unpaid annual fixed installment
46
payment to purchase shares of Common Stock in an initial public offering at a
price equal to 90% of the initial issue price per share of Common Stock in the
offering. Additionally, the employment contract provides that Mr. Wiebe may
participate in certain employee benefit plans of the Company, including
medical/dental plans, insurance plans, vacation, company automobile and expense
reimbursement. In the event Mr. Wiebe's employment is terminated prior to March
31, 1997, under certain circumstances he may be entitled under his employment
contract to receive up to the full amount he had a right to receive under the
employment agreement had his employment not been terminated.
STOCK OPTION PLAN
The Stock Option Plan was approved by the Board of Directors and
stockholders of the Company effective as of May 15, 1996. The objectives of the
Plan are to (i) attract, retain and motivate certain key employees, Nonemployee
Directors and consultants who are important to the success and growth of the
business of the Company and (ii) to create a long-term mutuality of interest
between such persons and the stockholders of the Company by granting options to
purchase Common Stock.
The Company has reserved 880,000 shares of Common Stock for issuance in
connection with the Stock Option Plan, which will be administered by the
Compensation Committee of the Board of Directors. Pursuant to the Stock Option
Plan, the Company may grant (i) Non-Qualified Stock Options (as defined therein)
or Incentive Stock Options (as defined therein) to key employees and (ii)
Non-Qualified Stock Options to eligible Nonemployee Directors and consultants.
See "Management -- Director Compensation." The exercise price and vesting terms
for the options shall be determined by the Compensation Committee and shall be
set forth in an option agreement. The exercise price will be at least 100% of
fair market value of the Common Stock on the date of grant in the case of
Incentive Stock Options and Non-Qualified Stock Options that are intended to be
performance-based under Section 162(m) of the Internal Revenue Code, and the
exercise price of any other Non-Qualified Stock Options shall be at least equal
to the par value of the Common Stock. Non-Qualified Stock Options will be
exercisable for not more than ten years, and Incentive Stock Options may be
exercisable for up to ten years except as otherwise provided in the Stock Option
Plan. The Compensation Committee may provide that an optionee may pay for shares
upon exercise of an option: (i) in cash; (ii) in already-owned shares of Common
Stock; (iii) by agreeing to surrender then exercisable options equivalent in
value; (iv) by payment through a cash or margin arrangement with a broker; (v)
in shares otherwise issuable upon exercise of the option; or (vi) by such other
medium or by any combination of (i), (ii), (iii), (iv) or (v) as authorized by
the Compensation Committee. In the event of certain extraordinary transactions,
including a merger, consolidation, a sale or transfer of all or substantially
all assets or an acquisition of all or substantially all the Common Stock,
vesting on such options will generally be accelerated.
As of August 20, 1996, options to purchase 543,358 shares of Common Stock
had been granted under the Stock Option Plan, of which 219,860 had been
exercised, 323,498 were outstanding and 16,250 were exercisable. The Stock
Option Plan will terminate on May 15, 2006.
OFFICER AND DIRECTOR LIABILITY
Pursuant to the Company's Certificate of Incorporation and under Delaware
law, directors of the Company are not liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty, except for liability in
connection with a breach of the duty of loyalty, for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, for dividend payments or stock repurchases illegal under Delaware law or
any transaction in which a director derived an improper personal benefit. Under
the Certificate of Incorporation, the Company will indemnify the officers and
directors of the Company to the full extent permitted under the Delaware General
Corporation Law (the "DGCL").
In accordance with Delaware law, the Company intends to enter into
indemnification agreements with its officers and directors, pursuant to which it
will agree to pay certain expenses, including attorney's fees, judgments, fines
and amounts paid in settlement incurred by such officers and directors in
connection with certain actions, suits or proceedings. These agreements will
require officers and directors to repay the amount of any expenses if it shall
be determined that they were not entitled to indemnification.
The Company maintains liability insurance for the benefit of directors and
officers.
47
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
MANAGING UNDERWRITER
Dillon Read is a managing underwriter in the Offering. As of July 10, 1996,
certain private investment partnerships managed by Dillon Read, and persons
related to Dillon Read, owned 44.2% of the shares of Common Stock of the Company
(assuming the exercise of their options, but not the options or warrants of
other persons, into shares of Common Stock). See " -- Certain Equity
Transactions," " -- Registration Rights Agreement," "Principal and Selling
Stockholders" and "Underwriting." Additionally, Mr. Leidel, a director of the
Company and its predecessors since May 1991, is a Senior Vice President of
Dillon Read and a partner of Dillon Read Venture Partners III, L.P. and Concord
II, both private venture capital funds managed by Dillon Read. See "Management
- -- Directors, Executive Officers and Other Key Employees."
CERTAIN EQUITY TRANSACTIONS
As of or prior to the completion of the Offering, all shares of Class A
Common Stock and Class B Common Stock will be reclassified as Common Stock
pursuant to the Reclassification. Prior to the Reclassification, Class B Common
Stock did not provide holders thereof the right to vote or to receive dividends.
ROLL-UP TRANSACTION. On March 31, 1994, in connection with the
reorganization of the Company from a partnership to a corporation, the Company
issued an aggregate of 2,100,376 shares of the Company's common stock (which was
reclassified as Class A Common Stock on March 8, 1995 pursuant to an amendment
to the Company's charter) to the following individuals and entities: (i) an
aggregate of 900,376 shares to Concord Partners ("Concord"), Concord II, Concord
Partners Japan Limited ("Concord Japan"), Lexington Partners III, L.P.
("Lexington III"), Lexington Partners IV, L.P. ("Lexington IV"), and Dillon
Read, as agent (collectively with Concord, Concord II, Concord Japan, Lexington
III and Lexington IV, the "Concord Investors"), in exchange for an aggregate of
500,375 Series A Preferred Units in the Partnership and all of the stock owned
by the Concord Investors in CCG Holding Company, Inc. (which, in turn, owned
400,000 Series A Preferred Units in the Partnership); (ii) 600,000 shares to
Norman R. Cox, Jr., a former officer of the Company, in exchange for all of the
stock owned by Mr. Cox in NRC, Inc. (which, in turn, owned 600,000 Common Units
in the Partnership); and (iii) 600,000 shares to David M. Cornell in exchange
for all of the stock owned by Mr. Cornell in Mayo, Inc. (which, in turn, owned
600,000 Common Units in the Partnership).
CAPITAL INVESTMENTS. On March 31, 1994, the Company issued an aggregate of
1,088,009 shares of the Company's common stock (which was reclassified as Class
A Common Stock on March 8, 1995 pursuant to an amendment to the Company's
charter) for an aggregate purchase price of approximately $6.5 million to the
following entities: (i) an aggregate of 768,790 shares to Charterhouse Equity
Partners II, L.P. ("CEP II") and a related party; (ii) an aggregate of 239,474
shares to certain of the Concord Investors; and (iii) 79,745 shares to another
institutional investor.
STOCK REPURCHASE. On November 1, 1995, in connection with the financing of
the repurchase of 555,000 shares of Class A Common Stock from Mr. Cox (the
"Stock Repurchase"), the Company issued options to purchase an aggregate of
555,000 shares of Class B Common Stock at an exercise price of $2.00 per share
(the "Repurchase Options") pursuant to stock option agreements (the "Stock
Option Agreements") to the Concord Investors (129,682 shares), CEP II (87,466
shares), David M. Cornell (137,110 shares), Jane B. Cornell (32,669 shares),
Steven W. Logan (50,000 shares), certain other investors and ING, which provided
the financing for the Stock Repurchase. Simultaneously, the Company, and each of
the holders of Repurchase Options entered into an investors agreement dated
November 1, 1995 (the "Investors Agreement") pursuant to which each of the
holders of Repurchase Options (excluding ING) agreed to exercise all of its
Repurchase Options on December 31, 1996 unless, on or prior to that date, the
Company has repaid in full the loan the Company had obtained to finance the
Stock Repurchase. The Company assigned its rights under the Stock Option
Agreements, including its right to receive payment, to ING. Additionally,
pursuant to the Investors Agreement, if any holder of Repurchase Options
(excluding ING) fails to exercise its Repurchase Options as required by the
Investors Agreement, such holder's Repurchase
48
Options would automatically be assigned to Concord II and CEP II ratably in
accordance with their respective ownership interests in the Company, and Concord
II and CEP II would be required to exercise such Repurchase Options.
OPTION EXERCISE AND INDEBTEDNESS OF MANAGEMENT. On July 8, 1996, Mr.
Cornell and Mr. Logan exercised options to purchase 137,110 and 82,750 shares
consisting of both Class A Common Stock and Class B Common Stock for aggregate
exercise prices of $274,220 and $180,638, respectively. In connection with such
exercise, Mr. Cornell and Mr. Logan each issued a promissory note in favor of
the Company for the respective exercise amounts. The promissory notes have terms
of four years and bear interest at the applicable short-term federal rate as
prescribed by Internal Revenue Service regulations. The maturity of the
promissory notes will be accelerated upon certain events, including termination
of employment. The notes are full recourse and collateralized by the shares
received upon the exercise of the options.
MIDTEX ACQUISITION FINANCING. In connection with the financing of the
acquisition of substantially all the assets of MidTex, the Company entered into
the 1996 Credit Facility with ING and issued the Convertible Bridge Note to ING.
As a condition to funding, the 1996 Credit Facility required the Concord
Investors to purchase at least $200,000 of Class B Common Stock. On July 9,
1996, certain of the Concord Investors purchased an aggregate of 90,331 shares
of Class B Common Stock for $254,733 (or $2.82 per share). As a condition to the
Convertible Bridge Note, ING, the Company, Concord II and CEP II entered into a
put agreement dated as of July 3, 1996 (the "Put Agreement"). Pursuant to the
Put Agreement, Concord II and CEP II each agreed, upon conversion of the
Convertible Bridge Note into shares of Common Stock (the "Conversion Stock"), to
purchase its pro rata share of the Conversion Stock from ING at $5.64 per share,
and the financial institution agreed to sell such shares to Concord II and CEP
II. Additionally, the Company, Concord II and CEP II entered into an extension
agreement dated as of July 3, 1996 (the "Extension Agreement") pursuant to
which, if the Company and ING agree to extend the date of the conversion of the
Convertible Bridge Note beyond December 30, 1996, Concord II and CEP II agree to
a deferral of up to three months of their rights and obligations under the Put
Agreement. In consideration for their agreement under the Extension Agreement,
if an extension occurs, the Company has agreed to grant to each of Concord II
and CEP II options to purchase the number of shares of Class B Common Stock
equal to the product of 15,055 and 10,037, respectively, and the number of
calendar months, up to three, of the extension at an exercise price of $2.82 per
share. The Company issued options to CEP II to purchase 60,221 shares of Class B
Common Stock at $2.82 per share in consideration for entering into the Put
Agreement.
INCENTIVE STOCK OPTIONS. Effective July 9, 1996, the Company granted to
each of Mr. Cornell and Mr. Logan Incentive Stock Options for the purchase of
126,124 shares of Class B Common Stock, vesting one third on each of December 31
of 1996, 1997 and 1998, with a term of 10 years and a per share exercise price
of $4.86 per share.
REGISTRATION RIGHTS AGREEMENT
The Company and certain stockholders, optionholders and warrantholders of
the Company, including the Concord Investors, CEP II, Mr. Cornell, Ms. Cornell
and Mr. Logan, are parties to a registration rights agreement dated as of March
31, 1994, as amended (the "Registration Rights Agreement"). The Registration
Rights Agreement provides demand registration rights upon a request (subject to
a maximum of two registrations in total under clauses (i) and (ii) below and a
maximum of one registration under clause (i) below) of (i) certain stockholders
holding at least 50% of the shares of Common Stock (or other securities of the
Company) subject to the agreement (the "Registrable Securities"), if the request
occurs prior to March 31, 1997, (ii) holders of Registrable Securities holding
at least 15% of the outstanding Registrable Securities, if the request occurs
after March 31, 1997 or (iii) holders of at least 50% of the shares of Common
Stock issued upon exercise of warrants granted in March 1995 and July 1996 to
ING in connection with the 1995 Credit Facility and the 1996 Credit Facility
(the "Warrant Shares"), if such request occurs upon the expiration of the
six-month period immediately following the consummation of an initial public
offering of shares of Common Stock by the Company in which fewer than 75% of the
Warrant Shares are sold. Under the Registration Rights Agreement, upon such
request the Company is required to use its best efforts to file a registration
statement under the Securities Act to register Registrable Securities
49
held by the requesting holders and any other stockholders who are parties to the
Registration Rights Agreement and who desire to sell Registrable Securities
pursuant to such registration statement. In addition, subject to certain
conditions and limitations, the Registration Rights Agreement provides that
holders of Registrable Securities may participate in any registration by the
Company of equity securities pursuant to a registration statement under the
Securities Act on any form other than Form S-4 or Form S-8. The Registration
Rights Agreement provides that the number of shares of Registrable Securities
that must be registered on behalf of such participating holders of Registrable
Securities is subject to limitation if the managing underwriter determines that
market conditions require such a limitation. The stockholders who are party to
the Registration Rights Agreement have waived their rights with respect to the
Offering to the extent they are not selling shares of Common Stock pursuant to
the Offering.
The registration rights conferred by the Registration Rights Agreement are
transferable to transferees of the Registrable Securities covered thereby. The
Registration Rights Agreement contains no termination provision, although
securities cease to be Registrable Securities upon the earlier of (i) being
disposed pursuant to an effective registration statement, (ii) being transferred
so that subsequent disposition of such securities does not require registration
or qualification of such securities under the Securities Act or any state
securities law and (iii) ceasing to be outstanding. After completion of the
Offering, 3,437,726 shares of Common Stock (including shares issuable upon
exercise of outstanding options and warrants) were subject to the Registration
Rights Agreement.
Under the Registration Rights Agreement, the Company is required to pay all
expenses incurred in complying with the agreement, except for underwriter fees,
discounts or commissions and fees or expenses of counsel to the selling security
holders (other than one counsel for the selling security holders as a group).
Under the Registration Rights Agreement, the Company will indemnify the selling
stockholders thereunder, and such stockholders will indemnify the Company,
against certain liabilities in respect of any registration statement or offering
covered by the agreement.
STOCKHOLDERS AGREEMENT
Simultaneously with the completion of the Offering, the Applicable
Stockholders (which include the Concord Investors, CEP II and Mr. Cornell) will
enter into an Amended and Restated Stockholders Agreement (the "Stockholders
Agreement"). Upon completion of the Offering, the Applicable Stockholders will
beneficially own in the aggregate approximately 44.7% of the outstanding Common
Stock assuming exercise of their outstanding stock options (and 36.8% of the
outstanding Common Stock if the Underwriters exercise their over-allotment
option in full). The Stockholders Agreement will provide that the Applicable
Stockholders agree to vote all shares of Common Stock owned by them to elect
three directors of the Company (one nominee of each of the Concord Investors,
CEP II and David M. Cornell) to a Board of Directors initially consisting of
five members. The Stockholders Agreement will provide that the number of
directors may only be increased by vote of a majority of the Board of Directors.
Consequently, the Applicable Stockholders, through their Common Stock holdings
and representation on the Board of Directors of the Company, which will
initially include a majority of directors designated by the Applicable
Stockholders, will be able to exercise significant influence over the policies
and direction of the Company. The Stockholders Agreement will terminate upon the
first to occur of (i) four years from the date of completion of the Offering or
(ii) the Applicable Stockholders collectively owning less than 25% of the
outstanding Common Stock. The Stockholders Agreement will also terminate as to
any Applicable Stockholder upon such stockholder owning less than 5% of the
oustanding Common Stock.
50
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of the date hereof
and as adjusted to reflect the sale of securities offered hereby (assuming the
Underwriters' over-allotment option is not exercised), based on information
obtained from the persons named below, with respect to the "beneficial
ownership" (as defined for purposes of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), of shares of Common Stock and outstanding
warrants and options to purchase shares of Common Stock by (i) each stockholder
known to the Company to beneficially own more than 5% of the outstanding shares
of Common Stock ("Significant Stockholders"), (ii) each director and executive
officer of the Company and each person nominated to become a director of the
Company upon completion of the Offering, (iii) all executive officers and
directors of the Company as a group and (iv) other Selling Stockholders.
Outstanding warrants and options to purchase shares of Common Stock represent
shares that may be acquired within 60 days after the date hereof pursuant to the
exercise of options or warrants; such shares are also included in the total
number of shares beneficially owned in the following table. Unless otherwise
stated, all the addresses are in care of the Company, 4801 Woodway, Suite 400W,
Houston, Texas 77056.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING(1)
--------------------------------------- ----------------------------
OUTSTANDING NUMBER OF OUTSTANDING
OPTIONS AND SHARES OPTIONS AND
NAME AND ADDRESS TOTAL NUMBER WARRANTS PERCENT OFFERED TOTAL NUMBER WARRANTS
- ---------------------------------------- ------------ ------------ ------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Concord Partners, L.P. and Concord
Partners II, L.P.; et. al(1)(2)....... 1,359,863 129,682 44.2% -- 1,359,863 129,682
535 Madison Avenue
New York, NY 10022
Charterhouse Equity Partners II, L.P.... 916,477 147,687 29.6 -- 916,477 147,687
c/o Charterhouse Group
International, Inc.(1)(3)
535 Madison Avenue
New York, NY 10022
Internationale Nederlanden (U.S.)
Capital Corporation................... 485,500 485,500 14.1 250,000 235,500 235,500
135 E. 57th St.
New York, NY 10022
David M. Cornell(4)..................... 762,110 0 25.8 62,500 578,275 0
Jane B. Cornell(4)...................... 242,669 32,669 8.1 121,335 121,334 32,669
Richard T. Henshaw III(5)............... -- -- -- -- -- --
Peter A. Leidel(6)...................... -- -- -- -- -- --
Campbell A. Griffin, Jr.(7)............. -- -- -- -- 3,750 3,750
Tucker Taylor(7)........................ -- -- -- -- 3,750 3,750
Steven W. Logan......................... 117,500 13,750 4.0 -- 117,500 13,750
Marvin H. Wiebe, Jr..................... 8,407 3,750 * -- 8,407 3,750
All executive officers and directors as
a group (seven persons)(8)............ 888,017 17,500 29.9 62,500 711,682 25,000
Other Selling Stockholders:
Rauscher Pierce Refsnes, Inc............ 43,062 43,062 1.4 43,062 -- --
1001 Fannin, Suite 700
Houston, Texas 77002
</TABLE>
NAME AND ADDRESS PERCENT
- ---------------------------------------- -------
Concord Partners, L.P. and Concord
Partners II, L.P.; et. al(1)(2)....... 21.3%
535 Madison Avenue
New York, NY 10022
Charterhouse Equity Partners II, L.P.... 14.3
c/o Charterhouse Group
International, Inc.(1)(3)
535 Madison Avenue
New York, NY 10022
Internationale Nederlanden (U.S.)
Capital Corporation................... 3.6
135 E. 57th St.
New York, NY 10022
David M. Cornell(4)..................... 9.2
Jane B. Cornell(4)...................... 1.9
Richard T. Henshaw III(5)............... --
Peter A. Leidel(6)...................... --
Campbell A. Griffin, Jr.(7)............. *
Tucker Taylor(7)........................ *
Steven W. Logan......................... 1.9
Marvin H. Wiebe, Jr..................... *
All executive officers and directors as
a group (seven persons)(8)............ 11.3
Other Selling Stockholders:
Rauscher Pierce Refsnes, Inc............ --
1001 Fannin, Suite 700
Houston, Texas 77002
(NOTES ON FOLLOWING PAGE)
51
- ------------
* Less than one percent.
(1) If the Underwriters' over-allotment option is exercised, certain Concord
Investors and CEP II will sell up to 313,630 and 211,370 shares of Common
Stock, respectively.
(2) Includes 187,114 shares (19,114 of which would be received upon exercise of
options) held by Concord, 646,993 shares (60,639 of which would be received
upon exercise of options) held by Concord II, 127,839 shares (11,982 of
which would be received upon exercise of options) held by Concord Japan,
each of which is a private venture capital fund managed by Dillon Read. Also
includes 60,249 shares (6,154 of which would be received upon exercise of
options) held by Lexington III, 2,435 shares (175 of which would be received
upon exercise of options) held by Lexington IV, each of which is a private
investment fund for certain Dillon Read affiliated persons, managed by
Dillon Read, and 335,233 shares (31,618 of which would be received upon
exercise of options) held by Dillon Read as agent for certain affiliated
persons.
(3) Includes 914,986 shares (147,687 of which would be received upon exercise of
options) held by CEP II and 1,491 shares held by a party related to CEP II.
The general partner of CEP II is CHUSA Equity Investors II, L.P., whose
general partner is Charterhouse Equity II, Inc., a wholly owned subsidiary
of Charterhouse. As a result of the foregoing, all of the shares of Common
Stock held by CEP II and a party related to CEP II would, for purposes of
Section 13(d) of the Securities Exchange Act of 1934, as amended, be deemed
to be beneficially owned by Charterhouse.
(4) Includes 210,000 shares prior to the Offering and 88,665 shares after the
Offering over which Jane B. Cornell, the former wife of David M. Cornell,
has sole investment power and, pursuant to a voting agreement, over which
Mr. Cornell has sole voting power. The voting agreement will not apply to
shares being sold by Ms. Cornell.
(5) Mr. Henshaw is Senior Vice President of Charterhouse. He disclaims any
beneficial ownership of the shares beneficially owned by Charterhouse.
(6) Mr. Leidel is a Senior Vice President of Dillon Read and a partner of
Concord II. He disclaims any beneficial ownership of the shares held by
Concord, Concord II or Concord Japan. Dillon Read, as agent for Mr. Leidel,
holds 1,238 shares (116 of which would be received upon exercise of
options). Mr. Leidel does not have voting or investment power with respect
to such shares.
(7) Mr. Griffin and Mr. Taylor will each receive options to purchase 15,000
shares of Common Stock upon completion of the Offering, 3,750 of which will
be immediately vested.
(8) Excludes shares of which Mr. Henshaw and Mr. Leidel disclaim beneficial
ownership. See notes 5 and 6.
52
DESCRIPTION OF CAPITAL STOCK
Upon the completion of the Offering, the Company's authorized capital stock
will consist of 50,000,000 shares of Common Stock, par value $.001 per share,
and 10,000,000 shares of preferred stock, par value $.001 per share (the
"Preferred Stock"). Upon completion of the Offering, the Company will have
outstanding 6,265,398 shares of Common Stock and no shares of Preferred Stock,
and the Company will have outstanding options or warrants to purchase an
additional 978,109 shares of Common Stock. The following summary is qualified in
its entirety by reference to the Certificate of Incorporation, which is filed as
an exhibit to the registration statement of which this Prospectus is a part.
COMMON STOCK
The Common Stock possesses ordinary voting rights for the election of
directors and in respect of other corporate matters, each share being entitled
to one vote. There are no cumulative voting rights, meaning that the holders of
a majority of the shares voting for the election of directors can elect all the
directors if they choose to do so. The Common Stock carries no preemptive rights
and is not convertible, redeemable or assessable or entitled to the benefits of
any sinking fund. The holders of Common Stock are entitled to dividends in such
amounts and at such times as may be declared by the Board of Directors out of
funds legally available therefor. See "Dividend Policy" for information
regarding dividend policy.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Certificate of Incorporation and limitations prescribed by law, the Board
of Directors is expressly authorized to adopt resolutions to issue the shares,
to fix the number of shares, to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any class or series of the
Preferred Stock, in each case without any action or vote by the holders of
Common Stock.
Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For instance, the issuance of a series of Preferred Stock might impede
a business combination by including class voting rights that would enable the
holders to block such a transaction; or such issuance might facilitate a
business combination by including voting rights that would provide a required
percentage vote of the stockholders. In addition, under certain circumstances,
the issuance of Preferred Stock could adversely affect the voting power of the
holders of the Common Stock. Although the Board of Directors is required to make
any determination to issue such stock based on its judgment as to the best
interests of the stockholders of the Company, the Board of Directors could act
in a manner that would discourage an acquisition attempt or other transaction
that some or a majority of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock over
the then market price of such stock. The Board of Directors does not currently
intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or the rules of any market on
which the Company's securities are traded.
STATUTORY BUSINESS COMBINATION PROVISIONS
The Company is a Delaware corporation and will become subject to Section
203 of the DGCL upon the completion of the Offering. In general, Section 203
prevents an "interested stockholder" of a Delaware corporation (defined
generally as a person owning 15% or more of the corporation's outstanding voting
stock) from engaging in a "business combination" (as defined therein) with that
corporation for three years following the date such person became an interested
stockholder unless: (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder (the "initial
transaction") or approved the business
53
combination; (ii) as a result of the initial transaction, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time that transaction commenced (excluding, for purposes of
determining the number of shares outstanding, stock owned by directors who are
also officers of the corporation and stock owned by employee stock plans that do
not provide employees with the rights to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer); or
(iii) following the initial transaction, the business combination is approved by
the board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of at least 66 2/3% of the
outstanding voting stock of the corporation not owned by the interested
stockholder. Under Section 203, the restrictions described above also do not
apply, among other things, to certain business combinations proposed following
the announcement or notification of one of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors, if
such extraordinary transaction is approved or not opposed by a majority of the
directors who were directors prior to any person becoming an interested
stockholder during the previous three years or were recommended for election or
elected to succeed such directors by a majority of such directors. Section 203
will not apply to transactions between the Company and the Concord Investors.
OTHER MATTERS
The DGCL authorizes Delaware corporations to limit or eliminate the
personal liability of directors to corporations and their stockholders for
monetary damages for breach of directors' fiduciary duty of care. The duty of
care requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware law,
directors are accountable to corporations and their stockholders for monetary
damages for conduct constituting gross negligence in the exercise of their duty
of care. Delaware law enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The Certificate of
Incorporation limits the liability of directors of the Company to the Company or
its stockholders to the fullest extent permitted by Delaware law. Specifically,
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability for
(i) any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the DGCL or (iv) any transaction from which the director derived an
improper personal benefit.
The inclusion of this provision in the Certificate of Incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors, and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefited the Company and its
stockholders. The Certificate of Incorporation and the Company's Bylaws provide
indemnification to the Company's officers and directors and certain other
persons with respect to certain matters, and the Company will enter into
agreements with each of its directors providing for indemnification with respect
to certain matters.
The Certificate of Incorporation provides that stockholders may act only at
an annual or special meeting of stockholders and may not act by written consent.
The Bylaws provide that special meetings of the stockholders can be called only
by the Chairman of the Board or at least two directors of the Company. The
Certificate of Incorporation provides that the number of directors will be no
greater than 13 and no fewer than three.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Security
Transfer & Trust, Inc..
54
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Offering, 6,265,398 shares of Common Stock will
be outstanding and 978,109 shares will be issuable upon exercise of outstanding
warrants and stock options. The 3,500,000 shares of Common Stock sold in the
Offering will be freely tradeable without restriction or further registration
under the Securities Act, except for any shares purchased by an "affiliate" of
the Company (as that term is defined under the Securities Act), which will be
subject to the resale limitations of Rule 144 under the Securities Act.
Substantially all of the remaining 3,743,507 outstanding shares of Common Stock
(including shares issuable upon exercise of outstanding options and warrants),
which are held by the Company's current stockholders, will be "restricted
securities" (within the meaning of Rule 144) and, therefore, will not be
eligible for sale to the public unless they are sold in transactions registered
under the Securities Act or pursuant to an exemption from registration,
including pursuant to Rule 144. The Company has entered into a Registration
Rights Agreement with certain of its existing stockholders, which provide such
stockholders with certain rights to have their shares of Common Stock registered
under the Securities Act, in order to permit the public sale of such shares. See
"Certain Relationships and Related Party Transactions -- Registration Rights
Agreement."
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, if a minimum of two years (including the holding
period of any prior owner, except an affiliate) has elapsed since the later of
the date of acquisition of the restricted securities from the issuer or from an
affiliate of the issuer, a person (or persons whose shares of Common Stock are
aggregated), including persons who may be deemed affiliates of the Company,
would be entitled to sell within any three-month period a number of shares of
Common Stock that does not exceed the greater of (i) 1% of the then outstanding
shares of Common Stock (i.e., 62,654 shares immediately after completion of the
Offering) and (ii) the average weekly trading volume during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission (the "Commission"). Sales under Rule 144 are
also subject to certain provisions as to the manner of sale, notice requirements
and the availability of current public information about the Company. In
addition, under Rule 144(k), if a period of at least three years (including the
holding period of any prior owner, except an affiliate) has elapsed since the
later of the date restricted securities were acquired from the Company or the
date they were acquired from an affiliate of the Company, a stockholder who is
not an affiliate of the Company at the time of sale and has not been an
affiliate for at least three months prior to the sale would be entitled to sell
shares of Common Stock in the public market immediately without compliance with
the foregoing requirements under Rule 144. The foregoing summary of Rule 144 is
not intended to be a complete description thereof. The Commission has proposed
an amendment to Rule 144 that would shorten the three- and two-year holding
periods described above to two years and one year, respectively.
The Company and persons who will beneficially own in the aggregate
3,556,393 shares of Common Stock (including shares issuable upon exercise of
outstanding options and warrants) upon the completion of the Offering, including
the Company's directors and executive officers, have agreed that they will not
sell, contract to sell, grant any option to sell or otherwise dispose of,
directly or indirectly, any shares of the Common Stock or any securities
convertible into or exchangeable for Common Stock or warrants or other rights to
purchase Common Stock or permit the registration of any shares of Common Stock,
prior to the expiration of 180 days following the date of this Prospectus,
without the prior written consent of Dillon Read, subject to certain exceptions.
See "Underwriting."
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register 880,000 shares of Common Stock reserved or to be
available for issuance pursuant to the Stock Option Plan. Shares of Common Stock
issued pursuant to such plan after the effective date of such registration
statement generally will be available for sale in the open market by holders who
are not affiliates of the Company and, subject to the volume and other
limitations of Rule 144, by holders who are affiliates of the Company.
Prior to the Offering, there has been no public market for the Common
Stock, and no prediction can be made of the effect, if any, that future sales of
Common Stock or the availability of shares for future sale will have on the
market price prevailing from time to time. Following the Offering, sales of
substantial amounts of Common Stock in the public market or otherwise, or the
perception that such sales could occur, could adversely affect the prevailing
market price for the Common Stock.
55
UNDERWRITING
The names of the Underwriters of the shares of Common Stock offered hereby
and the aggregate number of shares of Common Stock which each has severally
agreed to purchase from the Company and the Selling Stockholders, subject to the
terms and conditions specified in the Underwriting Agreement, are as follows:
UNDERWRITER NUMBER OF SHARES
- ---------------------------------------- ----------------
Dillon, Read & Co. Inc..................
Equitable Securities Corporation........
----------------
Total.............................. 3,500,000
================
The Managing Underwriters are Dillon, Read & Co. Inc. and Equitable
Securities Corporation ("Equitable Securities").
If any shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby if any Underwriter defaults in its
obligation to purchase such shares and if the aggregate obligations of the
Underwriters so defaulting do not exceed ten percent of the shares offered
hereby, the remaining Underwriters, or some of them, must assume such
obligations.
The Underwriters propose to offer the shares of Common Stock to the public
initially at the offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not to exceed $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not to exceed $ per share on sales to certain other dealers. The offering of the
shares of Common Stock is made for delivery when, as and if accepted by the
Underwriters and subject to prior sale and withdrawal, cancellation or
modification of the offer without notice. The Underwriters reserve the right to
reject any order for the purchase of the shares. After the shares are released
for sale to the public, the public offering price, the concession and the
reallowance may be changed by the Managing Underwriters.
Certain stockholders of the Company have granted to the Underwriters an
option for 30 days from the date of the Underwriting Agreement to purchase up to
an additional 525,000 shares of Common Stock from them at the initial public
offering price less the underwriting discount set forth on the cover page of
this Prospectus. The Underwriters may exercise such option only to cover
over-allotments made of the shares in connection with this Offering. To the
extent the Underwriters exercise this option, each of the Underwriters will be
obligated, subject to certain conditions, to purchase the number of additional
shares proportionate to such Underwriter's initial commitment.
The Company, each of its directors and officers and certain of its
stockholders have agreed that they will not sell, contract to sell, grant any
option to sell or otherwise dispose of, directly or indirectly, any shares of
the Common Stock or any securities convertible into or exchangeable for Common
Stock or warrants or other rights to purchase Common Stock, for a period of 180
days after the date of this Prospectus, without the prior written consent of
Dillon Read, except for (i) the registration and sale of shares of Common Stock
pursuant to the Offering, (ii) the issuance of shares of Common Stock by the
Company upon the purchase of outstanding warrants or the exercise of outstanding
options, provided that the Company shall have obtained an agreement
substantially to the effect set forth in this paragraph from each such person to
whom such shares of Common Stock are issued and (iii) the grant of options and
other rights by the Company to purchase up to an aggregate of 306,642 shares of
Common Stock to the Company's employees, officers and directors pursuant to the
Stock Option Plan, provided that the Company
56
shall have obtained an agreement substantially to the effect set forth in this
paragraph from each such employee, officer and director of the Company to whom
such options and rights are granted.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including any liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.
Immediately prior to the Offering, certain private investment partnerships
managed by Dillon Read, and persons related to Dillon Read, owned an aggregate
of 44.2% of the outstanding shares of Common Stock (assuming the exercise of
their options, but not the options or warrants of other persons, into shares of
Common Stock). Immediately after the consummation of the Offering, such persons
will beneficially own an aggregate of 21.3% of the Common Stock (assuming the
exercise of their options, but not the options or warrants of other persons,
into shares of Common Stock). See "Principal and Selling Stockholders" and
"Certain Relationships and Related Party Transactions -- Managing Underwriter."
In addition, Mr. Leidel, a Senior Vice President of Dillon Read, has been a
member of the Board of Directors of the Company and its predecessor since May
1991. See "Management -- Directors, Executive Officers and Other Key Employees,"
"Principal and Selling Stockholders" and "Certain Relationships and Related
Party Transactions -- Managing Underwriter."
Under Rule 2720 (the "Rule") of the Conduct Rules of the National
Association of Securities Dealers, Inc. ("NASD"), when an NASD member
participates in the distribution of an affiliated company's equity securities
for which a bona fide independent market does not exist, the price at which
those equity securities are distributed to the public can be no higher than that
recommended by a "qualified independent underwriter" within the meaning of the
Rule. Since the Company may be deemed to be an affiliate of Dillon Read under
the Rule, the Offering is being conducted in accordance with the applicable
provisions of the Rule. Equitable Securities has agreed to act as a "qualified
independent underwriter" within the meaning of the Rule with respect to the
Offering. Accordingly, in such capacity, Equitable Securities has, in accordance
with Section (c)(3)(A) of the Rule, exercised the usual standards of "due
diligence" in respect of the preparation of this Prospectus and the Registration
Statement of which this Prospectus is a part. The price per share of Common
Stock set forth on the cover page of this Prospectus is not higher than that
recommended by Equitable Securities in its capacity as a "qualified independent
underwriter."
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock has
been determined by negotiation among the Company, the Selling Stockholders and
the Managing Underwriters. Factors considered in determining the initial public
offering price were prevailing market conditions, the state of the Company's
development, recent financial results of the Company, the future prospects of
the Company and its industry, market valuations of securities of companies
engaged in activities deemed by the Managing Underwriters to be similar to those
of the Company and other factors deemed relevant. Consideration was also given
to the general state of the securities market, the market conditions for new
issues of securities and the demand for similar securities of comparable
companies.
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
At the request of the Company, the Underwriters have reserved up to 200,000
of the shares of Common Stock offered hereby for sale at the initial public
offering price to certain employees of the Company and certain other persons
designated by the Company who have expressed an interest in purchasing Common
Stock. The number of shares of Common Stock available to the general public will
be reduced to the extent these persons purchase the reserved shares. Any
reserved shares not purchased by such persons will be offered by the
Underwriters to the general public on the same basis as the other shares offered
hereby.
In connection with the Company's MidTex acquisition, Equitable Securities
received a customary investment banking fee. Rauscher Pierce Refsnes, Inc. has
in the past provided investment banking and other financial advisory services to
the Company, for which it received customary fees.
57
LEGAL MATTERS
Certain legal matters in connection with the sale of the Common Stock
offered hereby by the Company are being passed upon for the Company by Baker &
Botts, L.L.P., Houston, Texas. Wade H. Whilden, a partner of Baker & Botts,
L.L.P., owns options to purchase 50,000 shares of Common Stock. Certain legal
matters in connection with the Offering will be passed upon for the Underwriters
by Cahill Gordon & Reindel (a partnership including a professional corporation),
New York, New York.
EXPERTS
The audited financial statements included in this Prospectus and the
Registration Statement on Form S-1 of which this Prospectus is a part (the
"Registration Statement") have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports appearing herein and elsewhere
in the Registration Statement, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements
of the Exchange Act. Upon completion of the Offering, the Company will be
subject to the informational requirements of the Exchange Act, and in accordance
therewith, will be required to file periodic reports and other information with
the Commission. Such information can be inspected without charge after the
Offering at the public reference facilities of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at Suite 1400, Northwest Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material may also
be obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also
maintains a Web site (http://www.sec.gov) that will contain all information
filed electronically by the Company with the Commission.
The Company has filed the Registration Statement with the Commission under
the Securities Act with respect to the shares of Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
including the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statement, exhibits and schedules. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and, with respect to each such contract or document filed
as an exhibit to the Registration Statement, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement, and
each such statement is qualified in all respects by such reference. A copy of
the Registration Statement, including the exhibits and schedules thereto, may be
inspected and copies thereof may be obtained as described in the preceding
paragraph with respect to periodic reports and other information to be filed by
the Company under the Exchange Act.
58
CORNELL CORRECTIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
NUMBERS
-------
I. CORNELL CORRECTIONS, INC.
Report of Independent Public
Accountants........................ F-2
Consolidated Balance Sheets of
Cornell Corrections, Inc. as of
December 31, 1994 and 1995
(Audited), and June 30, 1996
(Unaudited)........................ F-3
Consolidated Statements of Operations
of Cornell Corrections, Inc. for
the Years Ended December 31, 1993,
1994 and 1995 (Audited), and for
the Six Months Ended June 30, 1995
and 1996 (Unaudited)............... F-4
Consolidated Statements of
Stockholders' Equity (Deficit) of
Cornell Corrections, Inc. for the
Years Ended December 31, 1993, 1994
and 1995 (Audited), and for the Six
Months Ended June 30, 1995 and 1996
(Unaudited)........................ F-5
Consolidated Statements of Cash Flows
of Cornell Corrections, Inc. for
the Years Ended December 31, 1993,
1994 and 1995 (Audited), and for
the Six Months Ended June 30, 1995
and 1996 (Unaudited)............... F-6
Notes to Consolidated Financial
Statements......................... F-7
II. MIDTEX DETENTIONS, INC. AND BIG
SPRING CORRECTIONAL CENTER
Report of Independent Public
Accountants........................ F-19
Combined Balance Sheets of MidTex
Detentions, Inc. and Big Spring
Correctional Center as of September
30, 1994 and 1995 (Audited), and
June 30, 1996 (Unaudited).......... F-20
Combined Statements of Operations and
Changes in Equity of MidTex
Detentions, Inc. and Big Spring
Correctional Center for the Years
Ended September 30, 1993, 1994 and
1995 (Audited), and for the Nine
Months Ended June 30, 1995 and 1996
(Unaudited)........................ F-21
Combined Statements of Cash Flows of
MidTex Detentions, Inc. and Big
Spring Correctional Center for the
Years Ended September 30, 1993,
1994 and 1995 (Audited), and for
the Nine Months Ended June 30, 1995
and 1996 (Unaudited)............... F-22
Notes to Combined Financial
Statements......................... F-23
III. TEXAS ALCOHOLISM FOUNDATION, INC. and
THE TEXAS HOUSE FOUNDATION, INC.
Report of Independent Public
Accountants........................ F-27
Combined Balance Sheets of Texas
Alcoholism Foundation, Inc. and The
Texas House Foundation, Inc. as of
December 31, 1995 (Audited), and
March 31, 1996 (Unaudited)......... F-28
Combined Statements of Operations and
Fund Balance of Texas Alcoholism
Foundation, Inc. and The Texas
House Foundation, Inc. for the Year
Ended December 31, 1995 (Audited),
and for the Three Months Ended
March 31, 1995 and 1996
(Unaudited)........................ F-29
Combined Statements of Cash Flows of
Texas Alcoholism Foundation, Inc.
and The Texas House Foundation,
Inc. for the Year Ended December
31, 1995 (Audited), and for the
Three Months Ended March 31, 1995
and 1996 (Unaudited)............... F-30
Notes to Combined Financial
Statements......................... F-31
IV. ECLECTIC COMMUNICATIONS, INC.
Report of Independent Public
Accountants........................ F-34
Combined Statement of Operations of
Eclectic Communications, Inc. and
International Self-Help Services,
Inc. for the Year Ended March 31,
1994 (Audited)..................... F-35
Combined Statement of Stockholders'
Equity of Eclectic Communications,
Inc. and International Self-Help
Services, Inc for the Year Ended
March 31, 1994 (Audited) .......... F-36
Combined Statement of Cash Flows of
Eclectic Communications, Inc. and
International Self-Help Services,
Inc. for the Year Ended March 31,
1994 (Audited)..................... F-37
Notes to Combined Financial
Statements......................... F-38
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Cornell Corrections, Inc.:
We have audited the accompanying consolidated balance sheets of Cornell
Corrections, Inc. (formerly Cornell Cox, Inc., a Delaware corporation and
successor to The Cornell Cox Group, L.P., a Delaware limited partnership), and
subsidiaries as of December 31, 1994 and 1995, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cornell Corrections, Inc.
and subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 15, 1996, except as to
Notes 1 and 7, for which the date is
July 16, 1996
F-2
CORNELL CORRECTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 928 $ 390 $ 556
Restricted cash.................... 279 284 325
Accounts receivable, net........... 2,148 3,436 4,007
Current portion of amount
receivable from the California
Department of Corrections........ 206 216 199
Deferred tax asset................. 266 27 27
Prepaids and other................. 579 187 240
--------- --------- -----------
Total current assets.......... 4,406 4,540 5,354
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $271, $430
and $650, respectively................ 564 1,909 4,441
OTHER ASSETS:
Goodwill, net of accumulated
amortization of $364, $7,467 and
$7,470, respectively............. 7,183 80 77
Amount receivable from the
California Department of
Corrections, noncurrent.......... 731 519 437
Deferred tax asset, noncurrent..... 170 409 409
Deferred MidTex acquisition
costs............................ -- -- 2,182
Deferred costs and other........... 164 397 1,065
--------- --------- -----------
Total assets.................. $ 13,218 $ 7,854 $13,965
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities...................... $ 2,391 $ 2,991 $ 3,272
Current portion of long-term
debt............................. -- 24 24
--------- --------- -----------
Total current liabilities..... 2,391 3,015 3,296
LONG-TERM DEBT, net of current
portion............................... 3,447 7,625 13,844
OTHER LONG-TERM LIABILITIES............. 626 491 466
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Class A common stock, $.01 par value, 9,000
shares authorized, 3,188, 3,189
and 3,189 shares issued and outstanding,
respectively..................... 32 32 32
Class B common stock, $.01 par
value, 1,000 shares
authorized, none issued and
outstanding...................... -- -- --
Additional paid-in capital......... 6,941 6,955 6,979
Retained deficit................... (219) (7,661) (8,049)
Treasury stock (555 shares of Class
A Common Stock, at cost).. -- (2,603) (2,603)
--------- --------- -----------
Total stockholders' equity
(deficit).................. 6,754 (3,277) (3,641)
--------- --------- -----------
Total liabilities and
stockholders' equity....... $ 13,218 $ 7,854 $13,965
========= ========= ===========
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Occupancy fees..................... $ 107 $ 15,389 $ 20,594 $ 10,104 $ 10,967
Other income....................... 3,091 300 98 3 370
--------- --------- --------- --------- ---------
3,198 15,689 20,692 10,107 11,337
OPERATING EXPENSES...................... 2,827 12,315 16,351 8,030 9,461
DEPRECIATION AND AMORTIZATION........... 16 635 673 293 188
--------- --------- --------- --------- ---------
CONTRIBUTION FROM OPERATIONS............ 355 2,739 3,668 1,784 1,688
GENERAL AND ADMINISTRATIVE EXPENSES..... 1,315 2,959 3,531 1,551 1,629
--------- --------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS, EXCLUDING
IMPAIRMENT LOSS....................... (960) (220) 137 233 59
IMPAIRMENT LOSS ON LONG-LIVED ASSETS.... -- -- 6,600 -- --
--------- --------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS........... (960) (220) (6,463) 233 59
INTEREST EXPENSE........................ -- 294 1,115 269 498
INTEREST INCOME......................... (45) (138) (136) (70) (51)
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES.......................... (915) (376) (7,442) 34 (388)
PROVISION FOR INCOME TAXES.............. -- 101 -- -- --
--------- --------- --------- --------- ---------
NET INCOME (LOSS)....................... $ (915) $ (477) $ (7,442) $ 34 $ (388)
========= ========= ========= ========= =========
EARNINGS (LOSS) PER SHARE............... $ (.32) $ (.12) $ (1.80) $ .01 $ (.11)
========= ========= ========= ========= =========
NUMBER OF SHARES USED IN PER SHARE
CALCULATION........................... 2,855 3,971 4,143 4,244 3,683
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL COMMON STOCK
PARTNERSHIP $.01 PAR ADDITIONAL RETAINED TOTAL
CAPITAL --------------- PAID-IN EARNINGS TREASURY STOCKHOLDERS'
BALANCE SHARES AMOUNT CAPITAL (DEFICIT) STOCK EQUITY (DEFICIT)
----------- ------ ------ ---------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1992........... $ 896 -- $ -- $ -- $ -- $ -- $ --
COMMON PARTNERSHIP UNITS ISSUED AS
COMPENSATION IN LIEU OF SALARY........ 100 -- -- -- -- -- --
ISSUANCE OF SERIES A PREFERRED
PARTNERSHIP UNITS..................... 1,002 -- -- -- -- -- --
ADJUSTMENT OF PRIOR-YEAR DISTRIBUTION
PAYABLE TO ACTUAL..................... 2 -- -- -- -- -- --
NET LOSS................................ (915) -- -- -- -- -- --
----------- ------ ------ ---------- -------- -------- ----------------
BALANCES AT DECEMBER 31, 1993........... 1,085 -- -- -- -- --
ALLOCATION OF JANUARY 1, 1994, TO MARCH
31, 1994 (i.e., PRE-INCORPORATION),
LOSS TO RESPECTIVE PARTNERS'
ACCOUNTS.............................. (258) -- -- -- 258 -- 258
CONVERSION OF PARTNERSHIP INTO CORNELL
CORRECTIONS, INC., A C CORPORATION.... (827) 2,100 21 806 -- -- 827
ISSUANCE OF COMMON STOCK................ -- 1,088 11 6,490 -- -- 6,501
DIRECT COSTS RELATED TO ISSUANCE OF
COMMON STOCK.......................... -- -- -- (355) -- -- (355)
NET LOSS................................ -- -- -- -- (477) -- (477)
----------- ------ ------ ---------- -------- -------- ----------------
BALANCES AT DECEMBER 31, 1994........... -- 3,188 32 6,941 (219) -- 6,754
EXERCISE OF STOCK OPTIONS............... -- 1 -- 3 -- -- 3
PURCHASE OF TREASURY STOCK (555 shares,
at cost).............................. -- -- -- -- -- (2,603) (2,603)
ISSUANCE OF WARRANTS.................... -- -- -- 11 -- -- 11
NET LOSS................................ -- -- -- -- (7,442) -- (7,442)
----------- ------ ------ ---------- -------- -------- ----------------
BALANCES AT DECEMBER 31, 1995........... -- 3,189 32 6,955 (7,661) (2,603) (3,277)
ISSUANCE OF COMMON STOCK................ -- 5 -- 24 -- -- 24
NET LOSS (Unaudited).................... -- -- -- -- (388) -- (388)
----------- ------ ------ ---------- -------- -------- ----------------
BALANCES AT JUNE 30, 1996 (Unaudited). . $ -- 3,194 $ 32 $6,979 $ (8,049) $ (2,603) $ (3,641)
=========== ====== ====== ========== ======== ======== ================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (915) $ (477) $ (7,442) $ 34 $ (388)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities --
Depreciation........................ 16 271 166 36 185
Amortization........................ -- 364 507 257 3
Impairment loss on long-lived
assets............................ -- -- 6,600 -- --
Deferred income taxes............... -- 101 -- -- --
Compensation expense for common and
preferred units issued in lieu of
salary............................ 100 -- -- -- --
Change in assets and liabilities,
net of effects from acquisition of
businesses --
Accounts receivable............ (465) (1,161) (1,086) (1,531) (472)
Restricted cash................ -- (71) (5) 54 (41)
Other assets................... (49) 779 166 (97) (282)
Accounts payable and accrued
liabilities.................. 386 92 (137) (384) 43
--------- --------- --------- --------- ---------
Net cash used in operating
activities........................ (927) (102) (1,231) (1,631) (952)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................. (20) (167) (1,159) (134) (467)
Acquisition of businesses, less cash
acquired............................ -- (5,921) -- -- (4,251)
Redemption of commercial paper and
U.S. Treasury notes................. 419 585 -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in)
investing activities.............. 399 (5,503) (1,159) (134) (4,718)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.......... -- -- 11,360 4,500 9,520
Payments on long-term debt............ -- (239) (7,158) (3,447) (3,301)
Issuance of common stock.............. 1,002 6,501 3 -- 24
Direct costs related to issuance of
common stock........................ -- (355) -- -- (407)
Proceeds from note payable............ -- 50 -- -- --
Payments on note payable.............. (12) (45) -- -- --
Purchase of treasury stock............ -- -- (2,353) -- --
--------- --------- --------- --------- ---------
Net cash provided by financing
activities........................ 990 5,912 1,852 1,053 5,836
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 462 307 (538) (712) 166
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. 159 621 928 928 390
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................ $ 621 $ 928 $ 390 $ 216 $ 556
========= ========= ========= ========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid during the period....... $ 4 $ 293 $ 520 $ 260 $ 460
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION AND BASIS OF PRESENTATION:
Cornell Corrections, Inc. (collectively with its subsidiaries, the
"Company"), a Delaware corporation (formerly named Cornell Cox, Inc.), provides
to governmental agencies the integrated development, design, construction and
management of facilities within three areas of operational focus: (i) secure
institutional correctional and detention services, (ii) non-secure pre-release
correctional services and (iii) juvenile correctional and detention services.
The Company was incorporated on March 31, 1994 as the successor company to
The Cornell Cox Group, L.P. (the "Partnership"), a Delaware limited partnership
formed on April 18, 1991. The capital structure of the Partnership consisted of
common and preferred units. In connection with the Company's March 31, 1994
acquisition of Eclectic Communications, Inc. and a related company
(collectively, "Eclectic"), all Partnership units were converted, on a
one-to-one basis, into shares of common stock of the Company, pursuant to a
roll-up agreement dated March 31, 1994 (see Note 4 for further discussion).
The Company is filing a Registration Statement on Form S-1 for the public
offering (the "Offering") of shares of Common Stock. Among others, the risks
discussed in the Registration Statement indicate that no assurance can be given
that: (i) the Company will not continue to incur losses in future periods; (ii)
the Company will be able to obtain additional contracts to develop or manage new
facilities on favorable terms or retain its existing contracts on the expiration
thereof; (iii) governmental agencies will supply a sufficient number of inmates
to enable the Company to operate profitably; and (iv) the Company will not lose
or experience a significant decrease in business from one of the governmental
agencies for which it performs services. These and other risks are discussed in
more detail in "Risk Factors" elsewhere in this Prospectus.
As of or prior to the completion of the Offering, the Company intends to
effect a reclassification of its equity (the "Reclassification"), whereby each
share of Class A Common Stock, par value $.001 per share ("Class A Common
Stock"), and Class B Common Stock, par value $.001 per share ("Class B Common
Stock"), of the Company will be reclassified into one share of Common Stock, par
value $.001 per share ("Common Stock"), of the Company.
ACQUISITION
Effective March 31, 1994, the Company purchased all outstanding stock of
Eclectic, a California-based operator of residential care and secure
correctional facilities.
Consideration for the Eclectic acquisition was $10 million, consisting of
$6 million in cash, $3.3 million in seller subordinated debt and $0.7 million of
other long-term obligations. In addition, the Company capitalized $334,000 of
costs, primarily advisory and professional fees, directly related to the
Eclectic acquisition. These capitalized costs represent additional purchase
price and, accordingly, are reflected as part of the resulting goodwill. Equity
funding for the Eclectic acquisition was provided by existing and new
institutional investors (collectively, the "Institutional Investors"). The
Eclectic acquisition was accounted for as a purchase, and the accompanying
statement of operations reflects the operating results of Eclectic since the
acquisition date.
F-7
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The consideration paid and total net book value of the assets acquired and
liabilities assumed associated with the Eclectic acquisition were as follows (in
thousands):
Current assets....................... $ 2,532
Property and equipment............... 586
Goodwill............................. 7,547
Other assets......................... 1,717
Current liabilities.................. (1,577)
Other liabilities.................... (471)
---------
Net assets acquired.................. $ 10,334
=========
Consideration for net assets
acquired --
Cash paid....................... $ 6,334
Debt issued and other
obligations incurred........... 4,000
---------
$ 10,334
=========
In connection with the Eclectic acquisition, the Company issued 43,062
warrants to a nonaffiliated financial advisor which assisted with the
acquisition. The exercise price per share of these warrants is $7.53. These
warrants are immediately exercisable, expire March 31, 1999 if not exercised,
and contain various provisions including, but not limited to, preemptive,
registration and tag-along rights.
INTERIM FINANCIAL INFORMATION
The financial information for the interim periods ended June 30, 1995 and
1996 has not been audited by independent accountants. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles ("GAAP") have been
condensed or omitted from the unaudited interim financial information. In the
opinion of management of the Company, the unaudited interim financial
information includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation. Results of operations for the
interim periods are not necessarily indicative of the results of operations for
the respective full years.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries and its predecessor Partnership. All
significant intercompany balances and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
RESTRICTED CASH
In accordance with several contracts, the Company maintains bank accounts
for an equipment replacement fund for the replacement of equipment used in state
programs and a restoration fund for any necessary restorations of the related
facilities. In addition, bank accounts are maintained for inmates at certain of
the Company's facilities. These bank accounts are collectively referred to as
"restricted cash" in the accompanying financial statements.
F-8
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECEIVABLE FROM THE CALIFORNIA DEPARTMENT OF CORRECTIONS
Under certain contracts with the California Department of Corrections
("CDC"), the Company is reimbursed by the CDC for purchases of certain equipment
and leasehold improvements. Such reimbursement is generally received in equal
installments, including interest at rates ranging from 11% to 12%, over periods
of 60 to 120 months. The following summarizes the maturities for each of the
next five years ending December 31 and thereafter (in thousands):
1996................................. $ 216
1997................................. 156
1998................................. 160
1999................................. 129
2000................................. 52
Thereafter........................... 22
---------
$ 735
=========
DEFERRED COSTS
Facility start-up costs, which consist of costs of initial employee
training, travel and other direct expenses incurred in connection with the
opening of new facilities, are capitalized and amortized as operating expenses
on a straight-line basis over the lesser of the initial term of the contract
plus renewals or five years. Direct and incremental development costs paid to
unrelated third parties incurred in securing new facilities, including certain
costs of responding to requests for proposal ("RFPs"), are capitalized as
deferred costs and amortized as part of start-up costs. Internal payroll and
other costs incurred in securing new facilities are expensed to general and
administrative expenses. Development costs are charged to general administrative
expenses when the success of obtaining a new facility project is considered
doubtful.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Ordinary maintenance and
repair costs are expensed while renewal and betterment costs are capitalized.
Furniture and equipment are depreciated over their estimated useful lives of one
to 10 years using the straight-line method. Amortization of leasehold
improvements is computed on the straight-line method based upon the shorter of
the life of the asset or the term of the respective lease.
Property and equipment at December 31, 1994 and 1995, are as follows (in
thousands):
1994 1995
--------- ---------
Leasehold improvements............... $ 540 $ 598
Furniture and equipment.............. 288 407
Construction in progress............. 7 1,334
--------- ---------
835 2,339
Accumulated depreciation............. (271) (430)
--------- ---------
$ 564 $ 1,909
========= =========
Construction in progress at December 31, 1995 represents construction and
development costs attributable to two new facilities that began operating in
early 1996.
GOODWILL
Goodwill represents the total consideration the Company paid to acquire
Eclectic, including additional direct acquisition costs incurred, in excess of
the fair market value of the net tangible assets acquired. Goodwill is being
amortized on a straight-line basis over 15 years, which represents management's
F-9
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
estimation of the related benefit to be derived from the acquired operations. In
March 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," which
was adopted by the Company in the fourth quarter of 1995. SFAS No. 121 requires
that long-lived assets, including goodwill, be probable of future recovery in
their respective carrying amounts as of each balance sheet date.
Effective March 31, 1994, the Company recorded approximately $7.5 million
in goodwill related to the acquisition of Eclectic. At the time of the
acquisition, management of the Company believed that certain of the Eclectic
facilities would be expanded to add new beds which would have resulted in
significant additional revenue and contribution from operations. As of December
31, 1994, the Company had obtained the needed permits and still believed that
the expansions were likely to occur. During 1995, the Company was unable to
secure approval for the expansions due primarily to lack of anticipated
additional appropriations from the contracting governmental agencies. As of
December 31, 1995, management of the Company reduced the probability of
expansion of the Eclectic contracts, which caused the recoverability of goodwill
to be uncertain resulting in a writedown of $6.6 million. Consequently, after
estimating the fair value of Eclectic's long-lived assets as of December 31,
1995 on the basis of the present value of management's estimated future cash
flows from Eclectic's contracts as they currently exist, the impairment loss
represents the amount necessary to reduce the carrying amounts of those assets
to their fair value. As a result of the recognition of the impairment loss,
future goodwill amortization is expected to be reduced by approximately $500,000
annually.
REVENUE RECOGNITION
Substantially all occupancy fees are derived from contracts with federal
and state government agencies, which pay per diem rates based upon the number of
occupant days for the period. Such revenues are recognized as services are
provided.
Revenues related to other income include development fees, consulting fees
and miscellaneous other income. The development fees relate to the development,
design and supervision of facility construction activities. Revenues are
recognized as services are provided.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes as
required by SFAS No. 109, "Accounting for Income Taxes." Under the liability
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying values of existing assets and liabilities and their respective tax
bases based on enacted tax rates.
USE OF ESTIMATES
The Company's financial statements are prepared in accordance with GAAP.
Financial statements prepared in accordance with GAAP require the use of
management estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements. Additionally, management estimates affect the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
BUSINESS CONCENTRATION
Contracts with federal and state governmental agencies account for nearly
all of the Company's revenues.
F-10
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FINANCIAL INSTRUMENTS
The Company considers the fair value of all financial instruments not to be
materially different from their carrying values at the end of each fiscal year
based on management's estimate of the Company's ability to borrow funds under
terms and conditions similar to those of the Company's existing debt.
ACCOUNTING FOR STOCK-BASED COMPENSATION
In 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which is effective for the Company's 1996 fiscal year. SFAS No.
123 allows the Company to adopt either of two methods for accounting for stock
options. The Company intends to continue to account for its stock-based
compensation plans under Accounting Principles Board, Opinion No. 25,
"Accounting for Stock Issued to Employees." In accordance with SFAS No. 123,
certain pro forma disclosures will be provided in the notes to the Company's
December 31, 1996 financial statements.
PER SHARE DATA
Per share data is based on the weighted average number of common shares
outstanding for the period. Common shares issuable with stock options and
warrants issued by the Company during the 12 months immediately preceding the
initial filing of the Registration Statement relating to the Offering have been
included in the calculation of the shares used in computing net loss per common
share (for the periods prior to the completion of the Offering) as if these
shares were outstanding for such periods using the treasury stock method.
3. LONG-TERM DEBT:
At December 31, 1994 and 1995, the Company's long-term debt consisted of
the following (in thousands):
1994(1) 1995
--------- ---------
1995 Credit Facility:
Revolving credit................ $ -- 740
Term loan....................... -- 4,000
Multiple-advance term loan...... -- 500
Stock repurchase loan........... -- 2,350
--------- ---------
Total...................... -- 7,590
6% secured subordinated debt(2)(3)... 2,284 --
Bank notes payable, interest at 1% to
1.75% over variable prime
rate(3)............................ 854 --
Other................................ 309 59
--------- ---------
3,447 7,649
Less -- current maturities........... -- 24
--------- ---------
$ 3,447 $ 7,625
========= =========
- ------------
(1) Debt scheduled to mature in 1995 and refinanced under the Company's March
1995 credit facility (the "1995 Credit Facility") has been classified as
long-term based on the terms of the 1995 Credit Facility. Obligations under
the 1995 Credit Facility are secured by liens on substantially all the
Company's assets.
(2) Incurred to former Eclectic stockholders in connection with the Company's
acquisition of Eclectic.
(3) Refinanced under the 1995 Credit Facility.
The Company's 1995 Credit Facility provides up to $15,000,000 in loans
pursuant to four separate facilities consisting of a $2,000,000 revolving credit
facility, a $4,000,000 term loan facility that was used
F-11
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to refinance indebtedness outstanding on December 31, 1994, a $6,650,000
multiple-advance term loan facility that may be used for new and expanded
facilities costs and a $2,350,000 facility that was used by the Company to
repurchase Class A Common Stock in November 1995 as described in Note 4. Loans
under the 1995 Credit Facility bear interest at the designated prime rate plus
the following margins: revolving credit, 1%; term loan, 1.5%; multiple-advance
term loan, 1.75%; and stock repurchase loan, 4.25% through 1996 and increasing
0.5% each quarter thereafter. At December 31, 1995, the designated prime rate
was 8.5%. At the Company's option, the loans (other than the stock repurchase
loan) may bear interest based on the London interbank offered rate ("LIBOR")
plus a margin. Commitment fees equal to 0.5% per annum are payable on the unused
portions of the revolving credit and multiple-advance term loan facilities.
The revolving credit facility will terminate and all amounts outstanding,
if any, thereunder will be due on March 31, 2000. Term loans and
multiple-advance term loans are repayable in installments beginning March 31,
1997 and 1998, respectively, and have a final maturity date of March 31, 2000.
The stock repurchase loan (the "Stock Repurchase Loan") will be due on March 31,
1998 and is subject to a mandatory prepayment of up to $992,000 on December 31,
1996 with the proceeds the Company receives from the mandatory exercise of stock
options described in Note 4.
The 1995 Credit Facility does not permit the payment of cash dividends and
requires the Company to maintain certain earnings, net worth and debt service
covenants.
Scheduled maturities of long-term debt as of December 31, 1995, are as
follows (in thousands):
1996.................................... $ 24
1997.................................... 774
1998.................................... 3,611
1999.................................... 3,240
---------
Total.............................. $ 7,649
=========
Subsequent to December 31, 1995, the Company replaced the existing 1995
Credit Facility (see Note 7).
In connection with the 1995 Credit Facility, the Company issued warrants to
the bank (the "Class B Warrants") to purchase 162,500 shares of its newly
created Class B Common Stock (see Note 4) at a per share exercise price of
$1.00. The Company's management believes the exercise price approximated fair
market value of the Class B Common Stock at the date of grant. The Class B
Warrants have been recorded at approximately $0.05 per share based on their
underlying value as estimated by management. The Class B Warrants expire March
14, 2002 if not exercised.
4. STOCKHOLDERS' EQUITY:
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
In March 1995, the Company redesignated its outstanding common stock as
Class A Common Stock and created a new class of common stock designated as
"Class B Common Stock." Class B Common Stock has no voting rights or rights to
dividends, but is otherwise identical to Class A Common Stock. Under the
Company's Certificate of Incorporation, as amended, on the first to occur of the
closing of an initial public offering of Class A Common Stock or March 14, 2005,
each share of Class B Common Stock automatically will convert into one share of
Class A Common Stock. As described in Note 1, the Company intends to effect the
Reclassification as of or prior to the completion of the Offering, which will
result in the reclassification of each share of Class A Common Stock and Class B
Common Stock into one share of Common Stock.
F-12
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TREASURY STOCK
Effective November 1, 1995, the Company repurchased 555,000 shares of Class
A Common Stock from a former officer of the Company (the"Stock Repurchase"). The
Stock Repurchase and related expenses were financed with borrowing under the
1995 Credit Facility.
In connection with the Stock Repurchase, the Company issued options to
purchase 555,000 shares of Class B Common Stock (the "Stock Repurchase
Options"), each with an exercise price of $2.00 per share, to certain existing
stockholders and to the lender under the 1995 Credit Facility. Holders of the
Stock Repurchase Options also entered into an investor agreement whereby, if the
Stock Repurchase Loan is still outstanding as of December 31, 1996, the holders
of the Stock Repurchase Options would be required to exercise such options at
that time. The resulting proceeds to the Company would be required to be used to
repay that portion of the outstanding Stock Repurchase Loan. The remaining
balance of the Stock Repurchase Loan matures on March 31, 1998. Any equity
proceeds received by the Company while the Stock Repurchase Loan is outstanding
are required to be utilized to repay any outstanding balance thereon.
In connection with the Stock Repurchase, the Company granted the lender
under the 1995 Credit Facility the right to require the Company to repurchase
("Put Right") options to purchase 31,250 shares of Class B Common Stock for an
aggregate price of $250,000 (i.e., $8.00 per share) upon the first to occur of
(a) the closing of an initial public offering of shares of common equity of the
Company, (b) the repayment by the Company of the Stock Repurchase Loan or (c)
December 31, 1996. Such Put Right shall expire if not exercised by January 2,
1997 by the lender under the 1995 Credit Facility. The Put Right was accrued in
connection with the Stock Repurchase.
PARTNERSHIP CONVERSION
The Company was converted from a partnership to a corporation on March 31,
1994 pursuant to a roll-up agreement, in accordance with which all of the
Partnership units were contributed to the Company on a one-to-one ratio for
shares of common stock of the Company (which were redesignated as shares of
Class A Common Stock in March 1995). On the same date, in connection with the
Eclectic acquisition, 1,088,009 additional shares of common stock of the Company
(which were redesignated as shares of Class A Common Stock in March 1995) were
issued for $6,501,000.
The $258,000 year-to-date net operating loss of the Partnership up to the
March 31, 1994, recapitalization, as discussed above, was allocated to the
respective partners' Partnership accounts.
OPTIONS AND WARRANTS
The following table presents options and warrants issued by the Company
through December 31, 1995:
<TABLE>
<CAPTION>
UNDERLYING PER SHARE NUMBER GRANTED PERCENT VESTED AT
CLASS OF EXERCISE --------------------- DECEMBER 31,
DATE ISSUED STOCK PRICE OPTIONS WARRANTS 1995
- ------------------------------------- ---------------- ---------- -------- --------- ------------------
<S> <C> <C> <C> <C>
November 1, 1993..................... Class A common $ 2.50 40,000 -- 75%
March 31, 1994....................... Class A common 7.53 -- 43,062 100
March 14, 1995....................... Class B common 1.00 -- 162,500 100
July 18, 1995........................ Class A common 2.17 15,000 -- 25
November 1, 1995..................... Class B common 2.00 555,000 -- 100
-------- ---------
Total options/warrants issued
through December 31, 1995..... 610,000 205,562
======== =========
</TABLE>
Options to purchase 1,000 shares of Class A Common Stock were exercised
during 1995. No options or warrants were canceled during 1994 or 1995. Stock
options vest over varying periods currently not exceeding four years.
F-13
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES:
Through March 31, 1994, the Company operated as a partnership and its
losses were allocated to and utilized by the partners. Effective March 31, 1994,
the Company elected C Corporation status. The Company and its subsidiaries file
a consolidated return.
The following is an analysis of the Company's net deferred tax assets as of
December 31, 1994 and 1995 (in thousands):
1994 1995
--------- ---------
Deferred tax assets relating to --
Net operating loss
carryforwards................. $ 220 $ 380
Accelerated depreciation and
amortization of property and
equipment for financial
reporting purposes............ 111 114
Accrued expenses recorded for
financial reporting purposes
and deferred for tax
purposes...................... 190 217
--------- ---------
521 711
Deferred tax liabilities............. -- --
--------- ---------
Net deferred tax asset
before valuation
allowance.................. 521 711
Valuation allowance.................. (85) (275)
--------- ---------
Net deferred tax asset..... $ 436 $ 436
========= =========
The components of the Company's income tax provision for the years ended
December 31, 1994 and 1995, are as follows (in thousands):
1994 1995
--------- ---------
Current provision.................... $ -- $ --
Deferred provision................... 101 --
--------- ---------
Tax provision.............. $ 101 $ --
========= =========
A reconciliation of taxes at the federal statutory rate with the income
taxes recorded by the Company is presented below (in thousands):
1994 1995
--------- ---------
Computed taxes at statutory rate of
34 percent........................... $ (128) $ (2,530)
Amortization of goodwill not
deductible........................... 124 2,356
1994 first quarter loss reported in
Partnership tax return............... 88 --
State income taxes, net of federal
benefit.............................. 35 --
Change in valuation allowance........ -- 190
Other................................ (18) (16)
--------- ---------
$ 101 $ --
========= =========
As of December 31, 1995, the Company has a net operating loss ("NOL")
carryforward for income tax purposes of approximately $1,000,000 available to
offset future taxable income. This carryforward will expire beginning 2008.
As discussed in Note 4, the Partnership's fiscal 1994 first quarter
operating loss of $258,000 (i.e., prior to the Eclectic acquisition and related
roll-up of the Partnership and incorporation of the Company) was allocated to
the respective partners' accounts. Accordingly, such operating loss is excluded
for purposes of computing the Company's 1994 taxable income.
F-14
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Since the Company operated as a partnership prior to March 31, 1994, and
since the Partnership was not a taxpaying entity, federal income taxes have not
been provided prior to March 31, 1994, since such taxes, if any, were payable by
the partners on their total income or loss from all sources.
6. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases office space and certain facilities under long-term
operating leases. Rent expense for all operating leases for the years ended
December 31, 1993, 1994 and 1995, was approximately $33,000, $1,667,000 and
$2,244,000, respectively. As of December 31, 1995, the Company had the following
rental commitments under noncancelable operating leases (in thousands):
For the year ending December 31 --
1996............................ $ 2,119
1997............................ 1,369
1998............................ 998
1999............................ 520
2000............................ 198
Thereafter...................... 35
---------
$ 5,239
=========
Eclectic leases certain administrative and program facilities under
operating lease agreements with related entities that are partially owned by
officers of Eclectic. Total lease payments applicable to such leases are
approximately $823,000 annually.
401(K) PLAN
The Company has a defined contribution 401(k) plan. The Company's matching
contribution represents 50 percent of a participant's contribution, up to the
first six percent of the participant's salary. The Company can also make
additional discretionary contributions. For the years ended December 31, 1993,
1994 and 1995, the Company recorded $0, $100,000 and $139,000, respectively, of
contribution expense.
OTHER
The Company is subject to certain claims and disputes arising in the normal
course of the Company's business. In the opinion of the Company's management,
uninsured losses, if any, resulting from the ultimate resolution of these
matters will not have a material adverse impact on the Company's financial
position or results of operations.
The 1995 Credit Facility discussed in Note 3 requires the Company to
maintain key person life insurance on the chief executive officer in the amount
of $2 million.
7. SUBSEQUENT EVENTS:
ACQUISITIONS
In May 1996, the Company acquired a 310-bed facility located in Houston,
Texas ("Reid Center"), previously operated by Texas Alcoholism Foundation, Inc.,
and The Texas House Foundation, Inc. (collectively, "Texas House"). In July
1996, the Company completed the acquisition of substantially all the assets of
MidTex Detentions, Inc. ("MidTex"), a private correctional center operator for
the Federal Bureau of Prisons ("FBOP"), operating three facilities in Central
Texas with a capacity of 1,305 beds (the "Big Spring Facilities"). Total
consideration for these acquisitions was approximately $26,222,000. The
acquisitions were financed primarily through borrowings under the 1996 Credit
Facility and the Convertible Bridge Note (see below). In connection with the
MidTex acquisition, the Company entered into various
F-15
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreements for the use of the facilities and the payment of $216,000 (annual
payments in lieu of property taxes) per year for approximately the next 35
years.
The acquisition costs and the estimated fair market value of the assets
acquired and liabilities assumed associated with the above-mentioned
acquisitions are as follows (in thousands):
MIDTEX REID CENTER
------- -----------
Cash paid............................... $22,700 $ 1,986
Transaction costs....................... 1,636 90
------- -----------
Total purchase price.......... $24,336 $ 2,076
======= ===========
Net assets acquired --
Cash............................... $ 486 $ --
Receivables, net................... 2,726 --
Other current assets............... 755 --
Property and equipment, net:.......
Prepaid facility use.......... 22,376 --
Other......................... 10 2,290
Other assets....................... 5 --
Accounts payable and accrued
liabilities...................... (2,022) (14)
Obligations to consultant.......... -- (200)
------- -----------
$24,336 $ 2,076
======= ===========
The carrying value of the prepaid facility use relates to the right to use
the three detention facilities retained by the City of Big Spring for 19, 20,
and 23 years, respectively, plus three five-year extensions. Extensions of the
lease agreement are at the option of the Company. The costs will be amortized
over the respective periods, including the option periods.
The site of the Airpark Unit and the Flightline Unit of the Big Spring
Facilities is part of a larger tract of land (the "Larger Tract"), which was
formerly part of a United States Air Force base conveyed to the City of Big
Spring (the "City") by the United States government in 1978. The document
conveying the Larger Tract to the City (the "Conveyance") contains certain
restrictive covenants relating to the use of the Larger Tract that apply to the
City and its lessees and any successors and assigns to the ownership of the
Larger Tract. The Conveyance provides that, at the option of the grantor, title
to the Larger Tract would revert to the grantor upon any breach of the
provisions of the Conveyance, following notice of breach by the Federal Aviation
Association ("FAA") and a 60-day grace period to cure any such breach. The
continued compliance by the City (or its successors or assigns or other lessees)
with the terms of the Conveyance is not within the control of the Company, and
any breach by the City (or its successors or assigns or other lessees) could
result in reversion of title of all or a portion of the Larger Tract to the
United States government. The FAA reviewed the operating agreement and the
related agreements between the City and the Company which permit the Company to
assume the operation of the Big Spring Facilities and advised the City in
writing that it has no objection to the execution thereof by the parties
thereto. See "Risk Factors -- Possible Loss of Lease Rights."
CREDIT FACILITIES
In conjunction with the acquisition of MidTex, the 1995 Credit Facility was
replaced with a new credit facility in July 1996 (the "1996 Credit Facility").
The 1996 Credit Facility provides up to $35,000,000 in loans pursuant to
four separate facilities consisting of a $2,500,000 revolving credit facility, a
$23,200,000 term loan facility that has been used to finance a portion of the
Mid-Tex acquisition costs, a $6,950,000 multiple-advance term loan facility that
F-16
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
may be used for new and expanded facilities costs and a $2,350,000 facility that
was used to refinance the stock repurchase loan described in Note 3. Loans under
the 1996 Credit Facility bear interest at a designated prime rate plus the
following margins: revolving credit, 1%; term loan, 1.5%; multiple-advance term
loan, 1.75%; and stock repurchase loan, 4.25% through 1996 and increasing 0.5%
each quarter thereafter. At the Company's option, the loans (other than the
stock repurchase loan) may bear interest at LIBOR plus a margin. Commitment fees
equal to 0.5% per annum are payable on the unused portions of the revolving
credit and multiple-advance term loan facilities.
The revolving credit facility will terminate and all amounts, if any,
outstanding thereunder will be due on June 29, 2001. Term loans and
multiple-advance loans are repayable in quarterly installments beginning in
December 1996 and March 1998, respectively, and have a final maturity date of
December 31, 2002. The stock repurchase loan is repayable in equal installments
on December 31, 1996 and December 31, 2002.
The 1996 Credit Facility is secured by all of the Company's assets,
including the stock of all the Company's subsidiaries, does not permit the
payment of cash dividends and requires the Company to comply with certain
earnings, net worth and debt service covenants.
In addition, in July 1996, the Company borrowed $6,000,000 evidenced by a
short-term convertible note ("Convertible Bridge Note"). The Convertible Bridge
Note bears interest at 9.5% per annum and matures December 30, 1996. If not then
paid, the Convertible Bridge Note automatically will convert into Class A Common
Stock at a conversion rate of $5.64 per share.
In connection with the 1996 Credit Facility, the Company issued warrants to
the lender enabling the lender to purchase 264,000 shares of Class B Common
Stock at a per share exercise price of $2.82. The warrants are fully vested and
expire in 2003. As a condition to funding, the 1996 Credit Facility required
certain existing stockholders to purchase at least $200,000 of Class B Common
Stock. On July 9, 1996, the existing stockholders purchased an aggregate of
90,331 shares of Class B Common Stock for $254,733 (or $2.82 per share). As a
condition to the Convertible Bridge Note, the lender and certain existing
stockholders entered into a put agreement dated as of July 3, 1996 (the "Put
Agreement"). Pursuant to the Put Agreement, the existing stockholders each
agreed, upon conversion of the Convertible Bridge Note into shares of Common
Stock (the "Conversion Stock"), to purchase its pro rata share of the Conversion
Stock from the lender at $5.64 per share, and the lender agreed to sell such
shares to the existing stockholders. Additionally, the Company and the existing
stockholders entered into an extension agreement dated as of July 3, 1996 (the
"Extension Agreement") pursuant to which, if the Company and the lender agree to
extend the date of the conversion of the Convertible Bridge Note beyond December
30, 1996, the existing stockholders agree to a deferral of up to three months of
their rights and obligations under the Put Agreement. In consideration for their
agreement under the Extension Agreement, if an extension occurs, the Company has
agreed to grant to the existing stockholders options to purchase the number of
shares of Class B Common Stock equal to the sum of 25,092 and the number of
calendar months, up to three, of the extension at an exercise price of $2.82 per
share. Any difference between the exercise price and fair market value at the
date additional options are earned pursuant to the terms of the Extension
Agreement will be recorded as additional financing costs in the period the
additional options are earned. The Company issued options to an existing
stockholder to purchase 60,221 shares of Class B Common Stock at $2.82 per share
in consideration for entering into the Put Agreement. The $492,816 difference
between the exercise price of the warrants granted to the lender and an existing
stockholder and the fair market value of the shares underlying such options and
the $137,303 difference between the purchase price and the fair market value of
the 90,331 shares of common stock purchased by an existing stockholder will be
capitalized as additional transaction costs of the MidTex acquisition.
F-17
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPTION EXERCISE AND INDEBTEDNESS OF MANAGEMENT
On July 8, 1996, the chairman of the board and the chief financial officer
of the Company exercised options to purchase 137,110 and 82,750 shares of Class
A Common Stock and Class B Common Stock at an aggregate price of $274,220 and
$180,638, respectively. In connection with the exercise, each officer entered
into a promissory note with the Company for the respective aggregate exercise
amounts. The promissory notes bear interest at the applicable short-term federal
rate as prescribed by Internal Revenue Service regulations, mature in four
years, are full recourse and are collateralized by shares of common stock
exercised.
STOCK OPTION PLAN
In May 1996, the Company adopted the 1996 Stock Option Plan (the "Stock
Option Plan"). Pursuant to the Stock Option Plan, the Company may grant
non-qualified and incentive stock options. The Compensation Committee of the
Board of Directors is responsible for determining the exercise price and vesting
terms for the options.
On January 1, 1996 and May 1, 1996, the Company granted 15,000 and 35,000
stock options, respectively, to employees to purchase Class A Common Stock at an
exercise price of $3.75 per share and $5.64 per share, respectively, which
management of the Company believes was not less than the fair market value of
the options at the date of grant. These options vest over a period of three
years and expire in 2006.
On July 9, 1996, the Company granted incentive stock options to two
officers for the purchase of an aggregate of 252,248 shares of Class B Common
Stock at a per share exercise price of $4.86, which management of the Company
believes represents the approximate fair market value of the options at the date
of grant. These options vest over three years and expire in 2006.
On July 12, 1996, the Company granted options to purchase 20,000 shares of
Class A Common Stock at an exercise price of $5.64 per share to Mazza & Riley,
Inc. ("Mazza") in consideration for executive recruiting services rendered by
Mazza.
CAPITALIZATION
Upon the completion of the Offering, the Company's authorized stock will be
as follows:
CLASS AUTHORIZED PAR VALUE
- ---------------------------------------- -------------- ---------
(IN THOUSANDS)
Common stock............................ 50,000 $.001
Preferred stock......................... 10,000 .001
Preferred stock may be issued from time to time by the Board of Directors
of the Company, which is responsible for determining the voting, dividend,
redemption, conversion and liquidation features of any preferred stock.
CHARTER AMENDMENT
On July 3, 1996, the Company filed an amendment to its Certificate of
Incorporation that (i) decreased the par value of the shares of Class A Common
Stock from $.01 to $.001 per share (ii) increased from 1,000,000 to 3,000,000
the number of authorized shares of Class B Common Stock and (iii) decreased the
par value of the shares of Class B Common Stock from $.01 to $.001 per share.
F-18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Cornell Corrections, Inc.:
We have audited the accompanying combined balance sheets of MidTex
Detentions, Inc. and Big Spring Correctional Center as of September 30, 1994 and
1995, and the related combined statements of operations and changes in equity
and cash flows for the years ended September 30, 1993, 1994 and 1995. These
financial statements are the responsibility of MidTex Detentions, Inc. and Big
Spring Correctional Center's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MidTex Detentions, Inc. and
Big Spring Correctional Center as of September 30, 1994 and 1995, and the
results of their operations and their cash flows for the years ended September
30, 1993, 1994 and 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 16, 1996
F-19
MIDTEX DETENTIONS, INC. AND
BIG SPRING CORRECTIONAL CENTER
COMBINED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 74 $ 66 $ 952
Restricted cash and cash
equivalents................... 244 361 451
Accounts receivable............. 1,673 2,960 2,726
Prepaids and other.............. 74 155 148
Commissary and inmate fund
assets........................ 116 197 156
--------- --------- -----------
Total current assets....... 2,181 3,739 4,433
PROPERTY AND EQUIPMENT, net of
accumulated
depreciation of $1,902, $2,532 and
$3,145, respectively............... 11,350 22,422 22,127
OTHER ASSETS......................... -- 8 5
--------- --------- -----------
Total assets............... $ 13,531 $ 26,169 $26,565
========= ========= ===========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities................... $ 1,138 $ 1,856 $ 1,889
Current portion of capital lease
obligations................... 1,096 1,169 1,254
Advances payable to owner....... 275 550 --
Restricted commissary and inmate
fund liabilities.............. 83 189 133
--------- --------- -----------
Total current
liabilities............. 2,592 3,764 3,276
LONG-TERM CAPITAL LEASE OBLIGATIONS,
net of current portion............. 6,614 16,061 15,110
CONTINGENCIES
EQUITY............................... 4,325 6,344 8,179
--------- --------- -----------
Total liabilities and
equity.................. $ 13,531 $ 26,169 $26,565
========= ========= ===========
The accompanying notes are an integral part of
these combined financial statements.
F-20
MIDTEX DETENTIONS, INC. AND
BIG SPRING CORRECTIONAL CENTER
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Occupancy fees..................... $ 9,026 $ 9,277 $ 13,293 $ 9,043 $ 11,720
Other income....................... 1,381 1,160 1,389 727 1,074
--------- --------- --------- --------- ---------
Total revenues................ 10,407 10,437 14,682 9,770 12,794
OPERATING EXPENSES...................... 6,826 7,047 9,007 6,066 8,016
DEPRECIATION AND AMORTIZATION........... 502 466 682 478 608
--------- --------- --------- --------- ---------
CONTRIBUTION FROM OPERATIONS............ 3,079 2,924 4,993 3,226 4,170
GENERAL AND ADMINISTRATIVE EXPENSES..... 1,084 1,089 1,527 862 1,067
--------- --------- --------- --------- ---------
INCOME FROM OPERATIONS.................. 1,995 1,835 3,466 2,364 3,103
INTEREST EXPENSE........................ 913 784 1,456 993 1,287
INTEREST INCOME......................... -- -- (9) (4) (19)
--------- --------- --------- --------- ---------
NET INCOME.............................. 1,082 1,051 2,019 1,375 1,835
EQUITY, beginning of year............... 2,294 3,276 4,325 4,325 6,344
DISTRIBUTION TO OWNER................... (100) (2) -- -- --
--------- --------- --------- --------- ---------
EQUITY, end of year..................... $ 3,276 $ 4,325 $ 6,344 $ 5,700 $ 8,179
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
F-21
MIDTEX DETENTIONS, INC. AND
BIG SPRING CORRECTIONAL CENTER
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 1,082 $ 1,051 $ 2,019 $ 1,375 $ 1,835
Adjustments to reconcile net income
to net cash provided by operating
activities --
Depreciation and amortization.... 502 466 682 478 607
Loss on write-off of property and
equipment..................... 71 -- -- (9) 6
Change in assets and
liabilities --
Decrease (increase) in
accounts receivable...... (901) (25) (1,286) (1,177) 234
Increase in restricted
cash..................... (71) (90) (117) (88) (90)
Decrease (increase) in
other assets............. (32) (17) (88) (60) 10
Decrease (increase) in
restricted commissary and
inmate fund assets....... 18 (24) (82) (55) 41
Increase (decrease) in
accounts payable and
accrued liabilities...... (202) 701 718 206 33
Increase (decrease) in
restricted commissary and
inmate fund
liabilities.............. 22 (16) 106 77 (56)
--------- --------- --------- --------- ---------
Net cash provided by
operating
activities............ 489 2,046 1,952 747 2,620
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............... (171) (226) (846) (657) (318)
--------- --------- --------- --------- ---------
Net cash used in investing activities.. (171) (226) (846) (657) (318)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease
obligations...................... (1,054) (1,214) (1,389) (1,113) (866)
Proceeds from note payable......... 2,570 910 1,175 1,165 125
Payments on note payable........... (1,730) (1,475) (900) (175) (675)
Distributions to owner............. (100) (2) -- -- --
--------- --------- --------- --------- ---------
Net cash used in financing activities.. (314) (1,781) (1,114) (123) (1,416)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 4 39 (8) (33) 886
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. 31 35 74 74 66
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................ $ 35 $ 74 $ 66 $ 41 $ 952
========= ========= ========= ========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid during the period.... $ 918 $ 799 $ 1,468 $ 994 $ 1,287
Acquisition of capital assets under
capital leases................... -- -- 10,909 10,909 --
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
F-22
MIDTEX DETENTIONS, INC. AND
BIG SPRING CORRECTIONAL CENTER
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:
MidTex Detentions, Inc., a Texas corporation, was formed in November 1987
to provide executive management and guidance to construct prison facilities and
operate overall prison activities for the city of Big Spring, Texas (the
"City"). The Big Spring Correctional Center ("BSCC") is an enterprise fund set
up by the City to operate certain prison facilities. Since 1987, three secured
correctional facilities have been established to house approximately 1,305
inmates for the United States federal government.
In February 1996, MidTex Detentions, Inc. and BSCC (collectively "MidTex")
signed a letter of intent with Cornell Corrections, Inc. (collectively with its
subsidiaries, the "Company"), for the sale of assets. The assets sold are
comprised principally of contract rights for use of the three correctional
facilities. The Company provides to governmental agencies the integrated
development, design, construction and operation of facilities within three areas
of operational focus: (i) secure institutional correctional and detention
services, (ii) non-secure pre-release correctional services and (iii) juvenile
correctional and detention services. At the transaction date, the Company will
obtain the rights to manage and operate the prison facilities for a term of 20
years with three five-year extensions, in exchange for cash consideration.
Essentially all employees of MidTex are expected to be hired by the Company. The
agreements are expected to be finalized in July 1996. The accompanying financial
statements were prepared in connection with the transaction with the Company
described above.
The financial information for the interim periods ended June 30, 1995 and
1996, has not been audited by independent public accountants. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
("GAAP") have been condensed or omitted from the unaudited interim financial
information. In the opinion of management of MidTex, the unaudited interim
financial information includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation. Results of operations
for the interim periods are not necessarily indicative of the results of
operations for the respective full years.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE FINANCIAL STATEMENTS
The financial statements have been prepared in accordance with GAAP. The
financial statements combine the accounts of MidTex after elimination of
significant intercompany balances and transactions.
CASH EQUIVALENTS
For purposes of the statement of cash flows, MidTex considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents.
RESTRICTED CASH, COMMISSARY AND INMATE FUND ASSETS
MidTex maintains bank accounts for restricted cash belonging to inmates and
the prison commissaries. Commissary and inmate assets are restricted for
specific uses. All restricted balances are offset by a corresponding liability
and fund balance.
ACCOUNTS RECEIVABLE
Accounts receivable primarily consist of receivables from the FBOP and INS.
No allowance for uncollectible amounts has been recorded as of September 30,
1994 and 1995, as management believes all amounts will be fully collected.
F-23
MIDTEX DETENTIONS, INC. AND
BIG SPRING CORRECTIONAL CENTER
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Property and equipment under
capital leases is stated at the net present value of future minimum lease
payments at the inception of the related leases. The costs of improvements that
extend the life of property and equipment are capitalized, while repairs and
maintenance costs are expensed as incurred. Depreciation for financial reporting
purposes is calculated on the straight-line method based upon the estimated
useful lives of the depreciable assets, which range from two to 40 years.
Property and equipment consist of the following (in thousands):
SEPTEMBER 30
ESTIMATED --------------------
LIFE IN YEARS 1994 1995
--------------- --------- ---------
Land................................. -- $ 75 $ 75
Buildings............................ 5-40 12,081 23,017
Machinery and equipment.............. 2-5 375 475
Furniture and fixtures............... 2-10 721 1,327
Construction in progress............. -- -- 60
--------- ---------
13,252 24,954
Less -- Accumulated depreciation..... (1,902) (2,532)
--------- ---------
$ 11,350 $ 22,422
========= =========
The construction in progress at September 30, 1995, relates to construction
and development costs for a new INS courthouse to be located at one of the
prison facilities. MidTex has committed to construct the courthouse at a cost of
approximately $260,000. The cost will be funded by MidTex and through loans from
the owner of MidTex totaling $50,000.
Approximately $11,837,000 and $20,211,000 of buildings, machinery and
equipment as of September 30, 1994 and 1995, respectively, is held under capital
leases.
FINANCIAL INSTRUMENTS
MidTex considers the fair value of all financial instruments not to be
materially different from their carrying values at year-end based on
management's estimate of MidTex's ability to borrow funds under terms and
conditions similar to those of MidTex existing debt.
INCOME TAXES
MidTex is an S Corporation; accordingly, income tax liabilities are the
responsibility of the owners. Big Spring Correctional Center is exempt from
federal income tax as it is a governmental entity.
REVENUES
Occupancy fees are principally derived from billings to the Federal Bureau
of Prisons (the "FBOP") and Immigration and Naturalization Service ("INS"),
which pay per diem rates based upon the number of occupant days for the period.
Such revenues are recognized as services are provided.
MidTex has other income related to commissary sales and other services
provided to inmates.
USE OF ESTIMATES
The financial statements of MidTex are prepared in accordance with GAAP.
Financial statements prepared in accordance with GAAP require the use of
management estimates and assumptions that affect
F-24
MIDTEX DETENTIONS, INC. AND
BIG SPRING CORRECTIONAL CENTER
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements. Additionally,
management estimates affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
BUSINESS CONCENTRATION
Contracts with federal government agencies account for substantially all of
the revenues of MidTex.
3. DEBT:
CAPITAL LEASE OBLIGATIONS
BSCC entered into leases with the owner of Midtex Detentions, Inc. for
three prison facilities and related land under agreements which are classified
as capital leases. As a result, BSCC has recorded property and equipment and
debt based on the present value of the lease payments with effective interest
rates ranging from approximately 8 percent to 20 percent. Management believes
that the discount factors implied in the lease arrangements approximated BSCC's
incremental borrowing rate for such transactions at the time they were agreed
upon. The leases generally provide for the lessee to pay taxes, maintenance,
insurance and certain other operating costs of the leased property.
Monthly installments of principal and interest on the leases range from
$67,000 to $140,000 a month. The leases have original terms ranging from six to
12 years, and each contains stated buyout amounts which decrease over the term
of the applicable lease. Each lease contains a nominal purchase option at the
end of the lease.
The first lease was fully paid and the bargain purchase option exercised in
April 1995. Title to the related prison has transferred to BSCC. The two
remaining leases were still in effect as of September 30, 1995.
Future maturities of capital lease obligations as of September 30, 1995,
are as follows (in thousands):
1996................................. $ 2,858
1997................................. 2,858
1998................................. 2,858
1999................................. 2,858
2000................................. 2,858
Thereafter........................... 13,389
----------
Total minimum lease
payments................... 27,679
Less -- Future interest payments..... (10,449)
----------
Present value of minimum
lease payments............. $ 17,230
==========
LEASES
MidTex leases its office facilities from its owner and president under an
operating lease which expires in 1997. Operating lease expense was $16,000,
$21,000 and $24,000 in 1993, 1994 and 1995, respectively. Future minimum lease
payments related to this operating lease as of September 30, 1995, total
$34,000.
ADVANCES PAYABLE
The owner of MidTex Detentions, Inc. frequently advances funds to BSCC to
finance short-term deficits in working capital at interest rates approximating
market. Total advances payable, due to the owner at September 30, 1994 and 1995,
were $275,000 and $550,000, respectively.
F-25
MIDTEX DETENTIONS, INC. AND
BIG SPRING CORRECTIONAL CENTER
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
4. EMPLOYEE BENEFIT PLANS:
The City, including BSCC, participates in the Texas Municipal Retirement
System ("TMRS") which is a qualified defined contribution plan administered to
all municipal employees in the state of Texas. TMRS requires all BSCC full-time
employees to make contributions. The City pays all general and administrative
expenses and makes matching contributions on behalf of the employees. BSCC made
contributions to the TMRS totaling $123,000, $156,000 and $184,000 in 1993, 1994
and 1995, respectively.
The City established a deferred compensation plan in lieu of Social
Security withholding. Employees are required to contribute a percentage of wages
which is matched by the City on a one-to-one ratio. A portion of the
contributions is remitted to a deferred compensation retirement account, and a
portion is remitted to a life and disability insurance package. BSCC made
contributions to this plan totaling $166,000, $185,000 and $234,000 in 1993,
1994 and 1995, respectively. BSCC does not provide employees any post-retirement
benefits other than pensions. MidTex Detentions, Inc. also does not provide
employees with post-retirement benefits.
5. EMPLOYEE MEDICAL AND WORKERS' COMPENSATION:
BSCC participates with the City in a self-insurance program for employee
medical and workers' compensation benefits up to $50,000 and $250,000 per
occurrence, respectively. BSCC contributes to the City's funds on a monthly
basis, based on total payroll expense. Should actual expenses for all of the
City's funds exceed the amounts contributed by BSCC and other funds, additional
charges could be allocated to BSCC. However, management believes the amount of
funds contributed by BSCC and other City funds is adequate to cover estimated
medical and workers' compensation expenses.
6. CONTINGENCIES:
LITIGATION, CLAIMS AND ASSESSMENTS
MidTex is subject to certain claims and disputes arising in the normal
course of business. In the opinion of management of MidTex, uninsured losses, if
any, resulting from the ultimate resolution of these matters will not have a
material adverse impact on the financial position or results of operations of
MidTex.
7. SUBSEQUENT EVENT:
Effective March 1996, MidTex amended its contract with the FBOP, which
decreased manday rates from $36.92 to $34.92.
F-26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Cornell Corrections, Inc.:
We have audited the accompanying combined balance sheet of the Reid Center
division of the Texas Alcoholism Foundation, Inc. and The Texas House
Foundation, Inc. (collectively, the "Texas House"), Texas nonprofit corporations
(further described in Note 1), as of December 31, 1995, and the related combined
statements of operations and fund balance and cash flows for the year then
ended. These financial statements are the responsibility of Texas House's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Reid Center
division of Texas Alcoholism Foundation, Inc. and The Texas House Foundation,
Inc., as of December 31, 1995, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 20, 1996
F-27
TEXAS ALCOHOLISM FOUNDATION, INC.
AND THE TEXAS HOUSE FOUNDATION, INC.
(TEXAS NONPROFIT CORPORATIONS)
COMBINED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 332 $ 429
Accounts receivable, net........ 461 379
Prepaids and other.............. 57 41
------------ ------------
Total current assets....... 850 849
PROPERTY AND EQUIPMENT, net of
accumulated depreciation
of $611 and $629, respectively..... 1,033 1,016
------------ ------------
Total assets............... $1,883 $1,865
============ ============
LIABILITIES AND FUND BALANCE
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities..................... $ 234 $ 149
Note payable.................... 15 4
------------ ------------
Total current
liabilities.................. 249 153
CONTINGENCIES
FUND BALANCE......................... 1,634 1,712
------------ ------------
Total liabilities and fund
balance...................... $1,883 $1,865
============ ============
The accompanying notes are an integral part of
these combined financial statements.
F-28
TEXAS ALCOHOLISM FOUNDATION, INC.
AND THE TEXAS HOUSE FOUNDATION, INC.
(TEXAS NONPROFIT CORPORATIONS)
COMBINED STATEMENTS OF OPERATIONS AND FUND BALANCE
(IN THOUSANDS)
FOR THE THREE
MONTHS ENDED
MARCH 31,
DECEMBER 31, --------------------
1995 1995 1996
------------ --------- ---------
(UNAUDITED)
REVENUES................................ $3,342 $ 828 $ 838
OPERATING EXPENSES...................... 3,562 906 743
DEPRECIATION AND AMORTIZATION........... 71 17 17
------------ --------- ---------
INCOME (LOSS)........................... (291) (95) 78
FUND BALANCE, beginning of period....... 1,925 1,925 1,634
------------ --------- ---------
FUND BALANCE, end of period............. $1,634 $ 1,830 $ 1,712
============ ========= =========
The accompanying notes are an integral part of
these combined financial statements.
F-29
TEXAS ALCOHOLISM FOUNDATION, INC.
AND THE TEXAS HOUSE FOUNDATION, INC.
(TEXAS NONPROFIT CORPORATIONS)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE THREE
MONTHS ENDED
MARCH 31,
DECEMBER 31, --------------------
1995 1995 1996
------------ --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss)...................... $ (291) $ (95) $ 78
Adjustments to reconcile income
(loss) to net cash (used in)
provided by operating
activities --
Depreciation and
amortization............... 71 17 17
Change in assets and
liabilities --
Decrease (increase) in
accounts receivable... (38) (15) 82
Decrease (increase) in
other assets.......... (9) (2) 16
Increase (decrease) in
accounts payable and
accrued liabilities... 22 (32) (85)
------------ --------- ---------
Net cash (used in)
provided by
operating
activities....... (245) (127) 108
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............... (47) (3) --
------------ --------- ---------
Net cash used in
investing
activities....... (47) (3) --
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable........... (3) (11) (11)
------------ --------- ---------
Net cash used in
financing
activities....... (3) (11) (11)
------------ --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... (295) (141) 97
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. 627 627 332
------------ --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................ $ 332 $ 486 $ 429
============ ========= =========
The accompanying notes are an integral part of
these combined financial statements.
F-30
TEXAS ALCOHOLISM FOUNDATION, INC.
AND THE TEXAS HOUSE FOUNDATION, INC.
(TEXAS NONPROFIT CORPORATIONS)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND PURPOSE AND BASIS OF PRESENTATION:
Texas Alcoholism Foundation, Inc. and The Texas House Foundation, Inc.
(collectively, "Texas House"), are Texas nonprofit corporations founded in 1965
and 1995, respectively, to provide residential services to male alcoholics.
Services have been expanded to include programs for alcohol, drug and behavior
problems, as well as adult education services. The foundations own and operate
facilities in two locations in Houston, Texas. The Beaumont Highway Facility
(the "Reid Center") consists of a 230-bed residential rehabilitation center and
an 80-bed alcohol and drug abuse treatment center. The 34th Street Facility
consists of a 130-bed residential substance abuse center for indigent residents
of Harris County, Texas and surrounding areas. The Reid Center has a contract
with the Texas Department of Criminal Justice to provide residential services,
reintegration programs and counseling for state parolees.
In May 1996, Cornell Corrections, Inc. (collectively with its subsidiaries,
the "Company") acquired the Reid Center for cash of approximately $2 million.
The Company provides to governmental agencies the integrated development,
design, construction and operation of facilities within three areas of
operational focus: (i) secure institutional correctional and detention services,
(ii) non-secure pre-release correctional services and (iii) juvenile
correctional and detention services. The accompanying financial statements were
prepared in connection with the sale of assets to the Company and include only
the assets, liabilities and results of operations associated with the assets
sold to the Company and exclude the assets, liabilities and results of
operations associated with the 34th Street Facility. While the accompanying
financial statements include substantially all of the assets, liabilities and
results of operations of the Reid Center, only the land, buildings and certain
equipment were sold to the Company as specified in the purchase agreement. The
remaining assets and liabilities were retained by Texas House. Although the
fiscal year of Texas House ends on August 31, the financial statements are
presented on the basis of December 31 to agree with the Company.
The financial information for the interim periods ended March 31, 1995 and
1996 has not been audited by independent accountants. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles ("GAAP") have been
condensed or omitted from the unaudited interim financial information. In the
opinion of management, the unaudited interim financial information includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the respective full
years.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The financial statements of the Reid Center have been prepared on the
accrual basis. The significant accounting policies followed are described below.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Reid Center considers all
highly liquid investments with original maturities of three months or less to be
cash equivalents.
The Reid Center maintains cash balances at several financial institutions
in Texas. Accounts are insured up to $100,000 by the Federal Deposit Insurance
Corporation. At December 31, 1995, the uninsured cash balances totaled $197,000.
F-31
TEXAS ALCOHOLISM FOUNDATION, INC.
AND THE TEXAS HOUSE FOUNDATION, INC.
(TEXAS NONPROFIT CORPORATIONS)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
PROPERTY AND EQUIPMENT
Property and equipment are capitalized at cost; donated property and
equipment are recorded at the estimated fair market value on the date of
donation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Routine maintenance and repairs that do
not improve or extend the life of the respective assets are expensed as
incurred.
FEDERAL INCOME TAXES
The Reid Center is exempt from federal income tax under Section 501(c)(3)
of the Internal Revenue Code.
REVENUE RECOGNITION
Occupancy fees are principally derived from billings to state government
agencies which pay per diem rates based upon the number of occupant days for the
period. Such revenues are recognized as services are provided.
USE OF ESTIMATES
The Reid Center's financial statements are prepared in accordance with
GAAP. Financial statements prepared in accordance with GAAP require the use of
management estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements. Additionally, management estimates affect the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
BUSINESS CONCENTRATION
Contracts with state governmental agencies account for substantially all of
the Reid Center's revenues. The Reid Center has one long-term contract which
provides for a predetermined per diem rate through August 1997.
FINANCIAL INSTRUMENTS
The Reid Center considers the fair value of all financial instruments not
to be materially different from their carrying values at year-end based on
management's estimate of the Reid Center's ability to borrow funds under terms
and conditions similar to those of the existing debt.
3. PROPERTY AND EQUIPMENT:
At December 31, 1995, property and equipment consists of the following (in
thousands):
ESTIMATED
DESCRIPTION LIFE IN YEARS AMOUNT
- ------------------------------------- ------------- ------
Land................................. -- $ 551
Buildings and improvements........... 10-31.5 739
Furniture and equipment.............. 5-7 308
Vehicles............................. 3-5 46
------
1,644
Less -- Accumulated depreciation..... 611
------
$1,033
======
F-32
TEXAS ALCOHOLISM FOUNDATION, INC.
AND THE TEXAS HOUSE FOUNDATION, INC.
(TEXAS NONPROFIT CORPORATIONS)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
4. NOTE PAYABLE
At December 31, 1995, the Reid Center has an outstanding note payable of
$15,000 related to the financing of one of its insurance policies. The note
bears an annual interest rate of 9 percent.
5. EMPLOYEE BENEFIT PLAN:
During 1991, the Reid Center adopted a deferred annuity plan qualified
under Internal Revenue Code Section 403(b). Full-time employees who have
attained the age of 21 and completed one month of employment are eligible to
join the plan. After completing two years of service, an employee's contribution
is equally matched by the Reid Center up to an amount equal to 5.0 percent of
compensation. Employees' contributions are subject to a maximum legal limit as
defined by the Internal Revenue Code. The Reid Center's contributions to the
plan were $9,000 for the year ended December 31, 1995, and $6,000 in unpaid
contributions was included in accounts payable and accrued liabilities at
December 31, 1995.
6. RELATED-PARTY TRANSACTION:
During 1995, certain improvements were made to the buildings by a
construction company owned by a director of the Reid Center. These expenditures
aggregated $42,000 for 1995.
F-33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Cornell Corrections, Inc.:
We have audited the accompanying combined statements of operations,
stockholders' equity and cash flows of Eclectic Communications, Inc. and
International Self-Help Services, Inc. (California corporations), for the year
ended March 31, 1994. These financial statements are the responsibility of the
management of Eclectic Communications, Inc. and International Self-Help
Services, Inc. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of operations, stockholders'
equity and cash flows are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of operations, stockholders' equity and cash flows. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall statements of operations,
stockholders' equity and cash flows presentation. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying financial statements were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission as described in Note 1 to the financial statements and are not
intended to be a complete presentation of the combined financial statements of
Eclectic Communications, Inc. and International Self-Help Services, Inc.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Eclectic
Communications, Inc. and International Self-Help Services, Inc. for the year
ended March 31, 1994, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 16, 1996
F-34
ECLECTIC COMMUNICATIONS, INC. AND
INTERNATIONAL SELF-HELP SERVICES, INC.
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1994
(IN THOUSANDS)
REVENUES:
Occupancy fees..................... $ 14,154
Other.............................. 16
---------
14,170
OPERATING EXPENSES...................... 11,403
DEPRECIATION AND AMORTIZATION........... 298
---------
CONTRIBUTION FROM OPERATIONS............ 2,469
GENERAL AND ADMINISTRATIVE EXPENSES..... 2,582
---------
LOSS FROM OPERATIONS.................... (113)
INTEREST EXPENSE........................ 155
INTEREST INCOME......................... (182)
---------
LOSS BEFORE BENEFIT FOR INCOME TAXES.... (86)
BENEFIT FOR INCOME TAXES................ 130
---------
NET INCOME.............................. $ 44
=========
The accompanying notes are an integral part of
this combined financial statement.
F-35
ECLECTIC COMMUNICATIONS, INC. AND
INTERNATIONAL SELF-HELP SERVICES, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1994
(IN THOUSANDS)
BALANCE, March 31, 1993................. $ 2,472
Net income......................... 44
Distributions to stockholders...... (342)
---------
BALANCE, March 31, 1994................. $ 2,174
=========
The accompanying notes are an integral part of
this combined financial statement.
F-36
ECLECTIC COMMUNICATIONS, INC. AND
INTERNATIONAL SELF-HELP SERVICES, INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 1994
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 44
Adjustments to reconcile net income
to net cash provided by
operating activities --
Depreciation and amortization... 298
Loss on disposal of assets...... 32
Deferred income taxes........... (137)
Provision for bad debt.......... 63
Changes in assets and
liabilities --
Decrease in accounts
receivable..................... 955
Increase in restricted cash... (57)
Decrease in prepaids.......... 133
Decrease in other assets...... 39
Decrease in accounts payable
and accrued liabilities........ (39)
Increase in other
liabilities.................... 38
---------
Net cash provided by
operating activities......... 1,369
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............... (174)
Advances to stockholders........ (45)
---------
Net cash used in investing
activities................... (219)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt, net.............. (771)
Distributions to stockholders...... (342)
---------
Net cash used in financing
activities................... (1,113)
---------
NET INCREASE IN CASH................. 37
CASH AT BEGINNING OF PERIOD.......... 259
---------
CASH AT END OF PERIOD................ $ 296
---------
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid during the period.... $ 155
=========
The accompanying notes are an integral part of
this combined financial statement.
F-37
ECLECTIC COMMUNICATIONS, INC. AND
INTERNATIONAL SELF-HELP SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Eclectic Communications, Inc. ("ECI"), and International Self-Help
Services, Inc. ("ISSI") (collectively, "Eclectic"), California corporations,
manage residential care and correctional facilities for various governmental
agencies. Effective April 1, 1994, Eclectic's stockholders sold their interests
in Eclectic to Cornell Group L.P., predecessor to Cornell Corrections, Inc., a
Delaware corporation, a company in the same industry. The accompanying
statements of operations, stockholders' equity and cash flows include the
combined accounts of Eclectic for the year ended March 31, 1994. However, they
do not reflect the effects of the acquisition by Cornell Corrections, Inc.
The accompanying financial statements were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and are not intended to be a complete presentation of the combined
financial statements of ECI and ISSI.
REVENUES
Occupancy fees are principally derived from billings directly to federal
and state governmental agencies, which pay per diem rates based upon the number
of occupant days for the period. Such revenues are recognized as services are
provided.
DEPRECIATION AND AMORTIZATION
Depreciation is computed using straight-line and accelerated methods based
upon the estimated useful lives of the related assets which range from one to 10
years. Amortization of leasehold improvements is computed on the straight-line
method based upon the shorter of the life of the asset or the term of the
respective lease.
INCOME TAXES
Prior to April 1, 1993, ECI provided deferred income taxes based on the
differences in income determined for income tax and financial reporting
purposes. From April 1, 1993, through December 31, 1993, the stockholders of ECI
elected to be taxed as an S Corporation. As such, ECI was not subject to federal
income taxes during this period. State income taxes were based on 2.5 percent of
taxable income during the period.
Effective January 1, 1994, ECI converted to C Corporation status for income
tax purposes. The benefit for income taxes is due to deferred tax assets
recorded in connection with the conversion to C Corporation status. ISSI is a C
Corporation for federal and state income tax purposes. Since its inception,
ISSI's operations have not resulted in significant income or loss.
A reconciliation of tax benefits at the federal statutory rate with income
taxes recorded by Eclectic is presented below (in thousands):
Computed tax benefit at statutory rate
of 34%................................ $ 29
Effect of change from S Corporation to C
Corporation --
Excess tax basis over book basis of
property and equipment at date of
conversion........................ 94
Excess book basis over tax basis of
accrued liabilities at date of
conversion........................ 22
State tax effect on tax and book
basis differences of property and
equipment and accrued
liabilities....................... 21
Other................................... (36)
---------
$ 130
=========
F-38
ECLECTIC COMMUNICATIONS, INC. AND
INTERNATIONAL SELF-HELP SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1994
STOCKHOLDERS' EQUITY
Equity includes the capital stock and retained earnings of Eclectic.
USE OF ESTIMATES
Eclectic's financial statements are prepared in accordance with generally
accepted accounting principles ("GAAP"). Financial statements prepared in
accordance with GAAP require the use of management estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Additionally, management estimates affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. COMMITMENTS AND CONTINGENCIES:
Eclectic is subject to certain claims and lawsuits arising in the normal
course of business. In the opinion of the Eclectic's management and outside
legal counsel, uninsured losses, if any, resulting from the ultimate resolution
of these matters will not have a material adverse impact on Eclectic's results
of operations.
Eclectic generally has long-term operating leases on buildings and
equipment related to Eclectic's facilities. Minimum lease payments under
noncancelable operating leases for the next five years ending March 31 and
thereafter are approximately as follows (in thousands):
1995.................................... $ 2,067
1996.................................... 1,711
1997.................................... 1,309
1998.................................... 948
1999.................................... 746
Thereafter.............................. 232
---------
$ 7,013
=========
3. RELATED-PARTY TRANSACTIONS:
Eclectic leases certain administrative and program facilities under
operating lease agreements with related entities that are owned, or partially
owned, by the stockholders and officers of Eclectic. Total lease payments
applicable to such leases are approximately $717,000 annually.
F-39
No dealer, salesman or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the offer contained herein, and if given or made,
such information or representation must not be relied upon as having been
authorized by the Company or any Underwriter. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, shares of
Common Stock in any jurisdiction to any person to whom it is unlawful to make
any such offer or solicitation in such jurisdiction or in which the person
making such offer or solicitation is not qualified to do so. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof.
------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary............................. 3
Risk Factors................................... 7
Use of Proceeds................................ 14
Dividend Policy................................ 14
Capitalization................................. 15
Dilution....................................... 16
Pro Forma Financial Data....................... 17
Selected Consolidated Historical and Pro Forma
Financial Data............................... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 24
Business....................................... 31
Management..................................... 42
Certain Relationships and Related Party
Transactions................................. 45
Principal and Selling Stockholders............. 51
Description of Capital Stock................... 53
Shares Eligible for Future Sale................ 55
Underwriting................................... 56
Legal Matters.................................. 58
Experts........................................ 58
Additional Information......................... 58
Index to Financial Statements.................. F-1
------------------------
Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
[LOGO]
CORNELL CORRECTIONS, INC.
------------------------
3,500,000 SHARES
COMMON STOCK
PROSPECTUS
, 1996
------------------------
DILLON, READ & CO. INC.
EQUITABLE SECURITIES
CORPORATION
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with issuance
and distribution of the securities being registered, all of which shall be paid
by the Company. All of such amounts (except the Securities and Exchange
Commission Registration Fee, the NASD Filing Fee and the Nasdaq National Market
Fees) are estimated.
Securities and Exchange Commission
Registration Fee..................... $ 19,432
NASD Filing Fee...................... 6,135
Nasdaq National Market Fees.......... *
Printing Expenses.................... *
Legal Fees and Expenses.............. *
Accounting Fees and Expenses......... *
Blue Sky Fees and Expenses........... *
Transfer Agent and Registrar Fees and
Expenses............................. *
Miscellaneous Expenses............... *
---------
Total........................... *
=========
- ------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
DELAWARE GENERAL CORPORATION LAW
Section 145(a) of the DGCL provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the
II-1
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 145(d) of the DGCL states that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsections (a) and (b) of Section 145. Such determination shall be
made (1) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or (2) if there are no such
directors, by independent legal counsel in a written opinion, or (3) by the
stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in Section 145. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
CERTIFICATE OF INCORPORATION
The Certificate of Incorporation of the Company provides that a director of
the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL or (iv) for any transaction from which the director derived an improper
personal benefit. If the DGCL is amended to authorize the further elimination or
limitation of the liability of directors, then the liability of a director of
the Company, in addition to the limitation on personal liability described
above, shall be limited to the fullest extent permitted by the amended DGCL.
Further, any repeal or modification of such provision of the Certificate of
Incorporation by the stockholders of the Company shall be prospective only, and
shall not adversely affect any limitation on the personal liability of a
director of the Company existing at the time of such repeal or modification.
II-2
Additionally, the Certificate of Incorporation provides that the Company will
indemnify its officers and directors to the fullest extent permitted by the
DGCL.
BYLAWS
The Bylaws of the Company will provide that each person who was or is made
a party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she or a person of whom he or she is the legal
representative, is or was or has agreed to become a director or officer of the
Company or is or was serving or has agreed to serve at the request of the
Company as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director or officer or in any other
capacity while serving or having agreed to serve as a director or officer, shall
be indemnified and held harmless by the Company to the fullest extent authorized
by the DGCL, as the same exists or may thereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
Company to provide broader indemnification rights than said law permitted the
Company to provide prior to such amendment) against all expense, liability and
loss (including without limitation, attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to serve in the
capacity which initially entitled such person to indemnity thereunder and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that the Company shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
board of directors of the Company. The Bylaws will further provide that the
right to indemnification conferred thereby shall be a contract right and shall
include the right to be paid by the Company the expenses incurred in defending
any such proceeding in advance of its final disposition; provided, however,
that, if the DGCL requires, the payment of such expenses incurred by a current,
former or proposed director or officer in his or her capacity as a director or
officer or proposed director or officer (and not in any other capacity in which
service was or is or has been agreed to be rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the Company of an undertaking, by or on behalf of such
indemnified person, to repay all amounts so advanced if it shall ultimately be
determined that such indemnified person is not entitled to be indemnified under
the Bylaws or otherwise. In addition, the Bylaws will provide that the Company
may, by action of its board of directors, provide indemnification to employees
and agents of the Company, individually or as a group, with the same scope and
effect as the indemnification of directors and officers provided for in the
Bylaws.
INDEMNIFICATION AGREEMENTS
The Company expects to enter into Indemnification Agreements with each of
its officers and directors. The Indemnification Agreements will provide that the
Company shall indemnify the officer or director and hold him harmless from any
losses and expenses which, in type or amount, are not insured under the
directors and officers' liability insurance maintained by the Company, and
generally indemnifies the officer or director against losses and expenses as a
result of a claim or claims made against him for any breach of duty, neglect,
error, misstatement, misleading statement, omission or other act done or
wrongfully attempted by the officer or director or any of the foregoing alleged
by any claimant or any claim against the officer or director solely by reason of
him being an officer or director of the Company, subject to certain exclusions.
The Indemnification Agreements will also provide certain procedures regarding
the right to indemnification and for the advancement of expenses.
UNDERWRITING AGREEMENT
The Underwriting Agreement will provide for the indemnification of the
directors and officers of the Company in certain circumstances.
II-3
INSURANCE
The Company has obtained a policy of liability insurance to insure its
officers and directors against losses resulting from certain acts committed by
them in their capacities as officers and directors of the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
As of or prior to the completion of the Offering, all of the shares of
Class A Common Stock and Class B Common Stock will be reclassified as Common
Stock. Prior to the Reclassification, Class B Stock did not provide holders
thereof the right to vote or to receive dividends.
The following information relates to securities of the Company issued or
sold within the past three years which were not registered under the Securities
Act:
Between November 1, 1993 and July 9, 1996, the Company and its predecessor
granted compensatory stock options to six employees covering an aggregate of
105,000 shares of Class A Common Stock (including options for Partnership units
that have been converted into options for Class A Common Stock) at exercise
prices ranging from $2.17 to $5.64 and 252,248 shares of Class B Common Stock at
an exercise price of $4.86 per share. Such issuances were exempt from the
registration requirements of the Securities Act by virtue of Rule 701
thereunder.
On March 31, 1994, in connection with the reorganization of the Company
from a partnership to a corporation, the Company issued an aggregate of
2,100,376 shares of the Company's common stock (which was reclassified as Class
A Common Stock on March 8, 1995 pursuant to an amendment to the Company's
charter) to the following individuals and entities: (i) Concord II (159,500
shares), Concord Japan (39,875 shares), Lexington III (52,500 shares), Lexington
IV (938 shares) and Dillon Read, as agent (247,563 shares), in exchange for
159,500, 39,875, 52,500, 937.5 and 247,562.5 Series A Preferred Units in the
Partnership, respectively; (ii) Concord (168,000 shares), Concord II (192,000
shares) and Concord Japan (40,000 shares), in exchange for all of the stock
owned by each in CCG Holding Company, Inc. (which, in turn, owned 400,000 Series
A Preferred Units in the Partnership); (iii) Norman R. Cox, Jr., a former
officer of the Company (600,000 shares) in exchange for all of the stock owned
by Mr. Cox in NRC, Inc. (which, in turn, owned 600,000 Common Units in the
Partnership); and (iv) David M. Cornell (600,000 shares) in exchange for all of
the stock owned by Mr. Cornell in Mayo, Inc. (which, in turn, owned 600,000
Common Units in the Partnership). Such issuances were exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof as a transaction not involving any public offering.
On March 31, 1994, the Company issued an aggregate of 1,088,009 shares of
the Company's common stock (which was reclassified as Class A Common Stock on
March 8, 1995 pursuant to an amendment to the Company's charter) for an
aggregate price of $6,501,500.94 to the following entities: CEP II and an
affiliate of CEP II (768,790 shares), Concord II (181,499 shares), Concord Japan
(25,439 shares), Lexington III (1,595 shares), Lexington IV (598 shares), Dillon
Read, as agent (30,343 shares) and Brown University Third Century Fund (79,745
shares). Such issuances were exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as a transaction not involving
any public offering.
On March 31, 1994, the Company issued warrants for the purchase of 43,062
shares of Class A Common Stock to Rauscher Pierce Refsnes, Inc. ("Rauscher") at
an exercise price of $7.53 per share in connection with Rauscher's services as a
private placement agent for the Company and in exchange for $100 in cash. The
warrants expire March 31, 1999. Such issuance was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof as a
transaction not involving any public offering.
On March 14, 1995, the Company granted warrants to ING to purchase 162,500
shares of Class B Common Stock at an exercise price of $1.00 per share in
connection with the execution of the 1995 Credit Facility. The warrants expire
March 14, 2002. Such issuance was exempt from the registration requirements of
the Securities Act by virtue of Section 4(2) thereof as a transaction not
involving any public offering.
II-4
In connection with the exercise of stock options held by Steven W. Logan,
effective as of October 2, 1995, the Company issued 1,000 shares of Class A
Common Stock to Mr. Logan. Such issuance was exempt from the registration
requirements of the Securities Act by virtue of Rule 701 thereunder.
On November 1, 1995, in connection with the financing of the Stock
Repurchase, the Company issued options to purchase an aggregate of 555,000
shares of Class B Common Stock at an exercise price of $2.00 per share to the
following persons or entities: David M. Cornell (137,110 shares), Wade H.
Whilden (50,000 shares), Steven W. Logan (50,000 shares), Jane B. Cornell
(32,669 shares), CEP II (87,466 shares), Dillon Read, as agent (31,618 shares),
Concord (19,114 shares), Concord II (60,639 shares), Concord Japan (11,982
shares), Lexington III (6,154 shares), Lexington IV (175 shares), Brown
University Third Century Fund (9,073 shares) and ING (59,000 shares). The
options expire October 31, 2002. Such issuances were exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof as transactions not involving any public offering.
On April 25, 1996, Mr. Wiebe used a portion of the bonus he received from
the Company for fiscal year 1995 to purchase 4,657 shares of Class A Common
Stock from the Company at 90% of the fair market value of the shares, as
determined by the Board of Directors, (or $5.08 per share). Such issuance was
exempt from the registration requirements of the Securities Act by virtue of
Section 4(2) thereof as a transaction not involving any public offering.
On July 8, 1996, Mr. Cornell exercised options to purchase 137,110 shares
of Class B Common Stock for an aggregate exercise price of $274,220 and Mr.
Logan exercised options to purchase 32,750 shares of Class A Common Stock and
50,000 shares of Class B Common Stock for an aggregate exercise price of
$180,638. Mr. Cornell and Mr. Logan each entered into promissory notes in favor
of the Company for the respective exercise amounts. Such issuances were exempt
from the registration requirements of the Securities Act by virtue of Rule 701
thereunder.
On July 9, 1996, the Company granted warrants to purchase 264,000 shares of
Class B Common Stock at the exercise price of $2.82 per share to ING in
connection with the 1996 Credit Facility and the execution of the Convertible
Bridge Note. The options expire July 3, 2003. Such issuance was exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof as transactions not involving any public offering.
On July 9, 1996, the Company granted options to purchase 60,221 shares of
Class B Common Stock at the exercise price of $2.82 per share to CEP II in
connection with the commitment by CEP II under the Put Agreement to purchase
shares of Conversion Stock. The options expire June 30, 2006. Such issuances
were exempt from the registration requirements of the Securities Act by virtue
of Section 4(2) thereof as transactions not involving any public offering.
On July 9, 1996, the Company issued 90,331 shares of Class B Common Stock
to certain of the Concord Investors for an aggregate purchase price of
approximately $254,733 in connection with funding under the 1996 Credit Facility
and the commitment by Concord II under the Put Agreement to purchase shares of
Conversion Stock. Such issuance was exempt from the registration requirements of
the Securities Act by virtue of Section 4(2) thereof as transactions not
involving any public offering.
On July 12, 1996, the Company granted options to purchase 20,000 shares of
Class A Common Stock at an exercise price of $5.64 per share to Mazza & Riley,
Inc. ("Mazza") in consideration for executive recruiting services rendered by
Mazza. Such issuance was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as a transaction not involving
any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
*1.1 -- Form of Underwriting Agreement.
3.1 -- Form of Restated Certificate of Incorporation of the Company.
II-5
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
3.2 -- Form of Amended and Restated Bylaws of the Company.
4.1 -- Form of certificate representing Common Stock.
4.2 -- Registration Rights Agreement dated as of March 31,
1994, as amended, among the Company and the
stockholders listed on the signature pages thereto.
*5.1 -- Opinion of Baker and Botts, L.L.P.
`9.1 -- Stock Transfer and Voting Agreement dated November 23, 1994 between David M. Cornell and
Jane B. Cornell.
10.1 -- Cornell Corrections, Inc. 1996 Stock Option Plan.
10.2 -- Employment Agreement dated as of March 31, 1994 between the Company and Marvin H. Wiebe.
10.3 -- Form of Indemnification Agreement between the Company and each of its directors and
executive officers.
10.4 -- Form of Stockholders Agreement among certain stockholders named therein.
10.5 -- Contract between CCCI and the CDC (No. 92.401) for the Baker, California Facility dated
June 25, 1992, as amended.
`10.6 -- Professional Management Agreement between the Company and Central Falls Detention Facility
Corporation dated July 15, 1992.
10.7 -- Operating Agreement by and between each of MidTex Detentions, Inc., the City of Big
Spring, Texas ("Big Spring") and Cornell Corrections of Texas ("CCTI") dated as of
July 1, 1996 and related Assignment and Assumption of Operating Agreement.
10.8 -- Contract between CCCI and the CDC (No. R92.132) for the Live Oak, California Facility
dated March 1, 1993, as amended.
10.9 -- [Intentionally Omitted]
10.10 -- [Intentionally Omitted]
10.11 -- [Intentionally Omitted]
`10.12 -- Contract between Texas Alcoholism Foundation, Inc. and the Texas Depart-
ment of Criminal Justice, Parole Division for the Reid Facility dated
January 31, 1996, as amended.
10.13 -- [Intentionally Omitted]
*10.14 -- Contract between CCCI and the Utah State Department
of Human Services, Division of Youth Corrections for
the Salt Lake City, Utah Juvenile Facility.
`10.15 -- Asset Purchase Agreement among CCTI, Texas Alcoholism Foundation, Inc. and The Texas House
Foundation, Inc. dated May 14, 1996.
10.16 -- Asset Purchase Agreement among CCTI, the Company, Ed Davenport, Johnny Rutherford and
MidTex Detentions, Inc. dated May 22, 1996.
10.17 -- Lease Agreement between CCCI and Baker Housing Company dated August 1, 1987 for the Baker,
California facility.
10.18 -- Lease Agreement between CCCI and Sun Belt Properties dated as of May 23, 1988, as amended
for the Live Oak, California facility.
10.19 -- Lease Agreement between Big Spring and Ed Davenport dated as of July 1, 1996 for the
Interstate Unit and related Assignment and Assumption of Leases.
10.20 -- Secondary Sublease Agreement between Big Spring and Ed Davenport dated as of July 1, 1996
for the Airpark Unit and related Assignment and Assumption of Leases.
10.21 -- Secondary Sublease Agreement between Big Spring and Ed Davenport dated as of July 1, 1996
for the Flightline Unit and related Assignment and Assumption of Leases.
II-6
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
10.22 -- [Intentionally Omitted]
10.23 -- Amended and Restated Credit Agreement among the Company, subsidiaries of the Company, the
lenders listed therein (the "Lenders"), and ING, as agent to the Lenders, dated as of
July 3, 1996.
10.24 -- Convertible Subordinated Promissory Note from the Company to ING dated as of July 3, 1996.
10.25 -- Put Agreement among the Company, Concord II, CEP II, and ING dated as of July 3, 1996.
10.26 -- Subordination Agreement among the Company and ING dated July 3, 1996.
10.27 -- Extension Agreement among the Company, Concord II and CEP II dated as of July 3, 1996.
10.28 -- Warrant Issuance Agreement between the Company and ING dated July 3, 1996.
10.29 -- Stock Option Agreement between the Company and CEP II dated July 9, 1996.
10.30 -- Warrant Issuance Agreement between the Company and ING dated March 14, 1995.
`10.31 -- Investors Agreement among the Company, ING and
certain stockholders of the Company listed therein
dated as of November 1, 1995.
`10.32 -- Option Agreement between the Company and ING dated as of November 1, 1995.
`10.33 -- Form of Option Agreement between the Company and the Optionholder listed therein dated as
of November 1, 1995.
11.1 -- Computation of Net Income Per Common and Common Equivalent Share.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Arthur Andersen LLP.
*23.2 -- Consent of Baker and Botts, L.L.P. (contained in Exhibit 5.1.)
23.3 -- Consent of Campbell A. Griffin, Jr. as nominee for directorship.
23.4 -- Consent of Tucker Taylor as a nominee for directorship.
`24.1 -- Power of Attorney (included on the signature page of this Registration Statement).
*27.1 -- Financial Data Schedule.
- ------------
</TABLE>
` Previously filed.
* To be filed by amendment.
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates representing the shares of Common Stock offered hereby in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling
II-7
person in connection with securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as a
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-8
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
HOUSTON, STATE OF TEXAS, ON AUGUST 26, 1996.
CORNELL CORRECTIONS, INC.
By: DAVID M. CORNELL
DAVID M. CORNELL
CHAIRMAN OF THE BOARD, PRESIDENT
AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ---------------------------------------------------------------------------------- ----------------
DAVID M. CORNELL Chairman of the Board, President August 26, 1996
DAVID M. CORNELL and Chief Executive Officer
(Principal Executive Officer)
<C> <S> <C>
STEVEN W. LOGAN Chief Financial Officer, Treasurer August 26, 1996
STEVEN W. LOGAN and Secretary
(Principal Financial Officer and
Principal Accounting Officer)
RICHARD T. HENSHAW III* Director August 26, 1996
RICHARD T. HENSHAW III
PETER A. LEIDEL* Director August 26, 1996
PETER A. LEIDEL
*By: DAVID M. CORNELL
DAVID M. CORNELL
ATTORNEY-IN-FACT
II-9
</TABLE>
EXHIBIT 3.1
DRAFT: AUGUST 16, 1996
RESTATED CERTIFICATE OF INCORPORATION
OF
CORNELL CORRECTIONS, INC.
UNDER SECTIONS 242 AND 245 OF THE
DELAWARE GENERAL CORPORATION LAW
CORNELL CORRECTIONS, INC. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, hereby adopts this Restated Certificate of Incorporation,
which accurately restates and integrates the provisions of the existing
Certificate of Incorporation of the Corporation and all amendments thereto that
are in effect on the date hereof (the "Certificate of Incorporation") and
further amends the provisions of the Certificate of Incorporation, and hereby
further certifies that:
1. The current name of the Corporation is Cornell Corrections,
Inc. The name under which the Corporation was originally incorporated was
Cornell Cox, Inc. The original Certificate of Incorporation of the Corporation
(as amended, the "Certificate of Incorporation") was filed with the Secretary of
State of the State of Delaware on March 31, 1994.
2. The restatement of and amendments to the Certificate of
Incorporation contained herein have been duly adopted by a resolution of the
Board of Directors of the Corporation (the "Board of Directors") proposing and
declaring advisable this Restated Certificate of Incorporation, and a majority
of the outstanding shares of the Corporation's capital stock has duly approved
and adopted this Restated Certificate of Incorporation, all in accordance with
the provisions of Sections 228, 242 and 245 of the General Corporation Law of
the State of Delaware.
3. This Restated Certificate of Incorporation restates and
further amends the Certificate of Incorporation of the Corporation. The
amendments to the Certificate of Incorporation effected by this Restated
Certificate of Incorporation include, but are not limited to, amendments (i) to
reclassify each share of Class A Common Stock, par value $.001 per share, of the
Corporation and each share of Class B Common Stock, par value $.001 per share,
of the Corporation into one share of Common Stock, par value $.001 per share, of
the Corporation, (ii) to authorize the issuance of up to 10,000,000 shares of
Preferred Stock, par value $.001 per share, of the Corporation from time to time
in one or more series as may be determined by the Board of Directors, (iii) to
add provisions relating to dividends, liquidation and voting with respect to
Common Stock of the Corporation, (iv) to add provisions regarding the denial of
preemptive rights and cumulative voting, (v) to provide for not less than 3 and
no more than 13 Directors of the Corporation, (vi) to provide the procedure for
filling vacancies on the Board of Directors, (vii) to restrict the taking of
action by the stockholders of the Corporation by less than unanimous written
consent without a stockholders' meeting, and (viii) to provide for the amendment
of the Bylaws of the Corporation by the Board of Directors and by the
stockholders of the Corporation and to establish the required vote for any such
amendment.
1
4. The capital of the Corporation shall not be reduced under or
by reason of the foregoing amendments to the Certificate of Incorporation.
5. The Certificate of Incorporation shall be superseded by this
Restated Certificate of Incorporation, which Restated Certificate of
Incorporation shall become effective at 8:00 a.m., New York time, on the closing
date of an initial public offering of shares of Common Stock of the Corporation
pursuant to a registration statement that shall have become effective under the
Securities Act of 1933, as amended, so long as such date occurs within 90 days
after the date of filing hereof, and this Restated Certificate of Incorporation
shall thereafter be the Certificate of Incorporation of the Corporation.
6. The text of the Certificate of Incorporation is hereby
restated and amended to read in its entirety as follows (hereinafter, this
Restated Certificate of Incorporation, as it may be further amended or restated
from time to time, is referred to the "Restated Certificate of Incorporation").
RESTATED CERTIFICATE OF INCORPORATION
FIRST: The name of the Corporation is Cornell Corrections, Inc.
SECOND: The address of the registered office of the Corporation
in the State of Delaware is 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful
business, act or activity for which corporations may be organized under the
provisions of the General Corporation Law of the State of Delaware or any
successor statute (the "DGCL").
FOURTH: The aggregate number of shares of capital stock that the
Corporation shall have authority to issue is 60,000,000, divided into classes as
follows:
(1) 50,000,000 shares of common stock, par value $.001 per share
("Common Stock"), and
(2) 10,000,000 shares of preferred stock, par value $.001 per
share ("Preferred Stock").
2
Shares of any class or series of capital stock of the Corporation
may be issued for such consideration and for such corporate purposes as the
Board of Directors may from time to time determine.
Upon the effectiveness of the Restated Certificate of
Incorporation under the DGCL, each outstanding share of Class A Common Stock,
par value $.001 per share, of the Corporation and each outstanding share of
Class B Common Stock, par value $.001 per share, of the Corporation shall be
automatically reclassified as one share of Common Stock.
The following is a statement of the powers, preferences and
rights, and the qualifications, limitations or restrictions, of the Preferred
Stock and Common Stock.
SECTION I. PREFERRED STOCK
Shares of Preferred Stock shall be issuable from time to time in
one or more series as may be determined by the Board of Directors. Each series
shall be distinctly designated. The Board of Directors is hereby expressly
granted the authority to fix, by resolution or resolutions (a) adopted prior to
such issuance, (b) providing for the issuance of any shares of each particular
series of Preferred Stock and (c) incorporated in a certificate of designation
filed with the Secretary of State of the State of Delaware, the designation,
powers (including voting powers and voting rights, full or limited, or no voting
powers) and preferences, and the relative, participating, optional or other
rights, if any, and the qualifications, limitations or restrictions thereof, if
any, of such series, including, without limiting the generality of the
foregoing, the following:
(1) the designation of, and the number of shares of Preferred
Stock which shall constitute, the series, which number may be increased
(except as otherwise fixed by the Board of Directors) or decreased (but
not below the number of shares thereof then outstanding) from time to
time by action of the Board of Directors;
(2) the rate and times at which (or the method of determination
thereof), and the terms and conditions upon which, dividends, if any, on
shares of the series shall be paid, the nature of any preferences or the
relative rights of priority of such dividends to the dividends payable,
and the qualifications, limitations or restrictions, if any, with
respect to such dividends payable, on any other shares of any class or
classes of capital stock of the Corporation or on any shares of other
series of Preferred Stock, and a statement whether or in what
circumstances such dividends shall be cumulative;
3
(3) whether shares of the series shall be convertible into or
exchangeable for shares of any class or series of capital stock or other
securities or property of the Corporation or of any other corporation or
entity, and, if so, the terms and conditions of such conversion or
exchange, including any provisions for the adjustment of the conversion
or exchange rate in such events as the Board of Directors shall
determine;
(4) whether shares of the series shall be redeemable, and, if so,
the terms and conditions of such redemption (including whether
redemption shall be optional or mandatory), including the date or dates
or event or events upon or after the occurrence of which they shall be
redeemable, and the amount and type of consideration payable in case of
redemption, which amount per share may vary under different conditions
and at different redemption dates;
(5) the rights, if any, of holders of shares of the series upon
the voluntary or involuntary liquidation, merger, consolidation,
distribution or sale of assets, dissolution or winding-up of the
Corporation, and the relative rights of priority, if any, of payment of
shares of the series;
(6) whether shares of the series shall have a sinking fund or
purchase account for the redemption or purchase of shares of the series,
and, if so, the terms, conditions and amount of such sinking fund or
purchase account;
(7) whether shares of the series shall have voting rights in
addition to the voting rights as shall be provided by law and, if so,
the terms of such voting rights, which may, without limiting the
generality of the foregoing, include (a) the right to more or less than
one vote per share on any or all matters voted upon by the stockholders
of the Corporation and (b) the right to vote, as a series by itself or
together with other series of Preferred Stock or together with all
series of Preferred Stock as a class and/or with the Common Stock as a
class, upon such matters, under such circumstances and upon such
conditions as the Board of Directors shall determine, including, without
limitation, the right, voting as a series by itself or together with
other series of Preferred Stock or together with all series of Preferred
Stock as a class and/or with the Common Stock as a class, to elect one
or more Directors of the Corporation under such circumstances and upon
such conditions as the Board of Directors shall determine; and
(8) any other powers, preferences and relative, participating,
optional or other rights, and qualifications, limitations or
restrictions, of shares of that series.
The relative powers, preferences and rights of each series of Preferred Stock in
relation to the powers, preferences and rights of each other series of Preferred
Stock shall, in each case, be as fixed from time to time by the Board of
Directors in the resolution or resolutions adopted pursuant to the
4
authority granted herein, and the consent, by class or series vote or otherwise,
of holders of Preferred Stock of such of the series of Preferred Stock as are
from time to time outstanding shall not be required for the issuance by the
Board of Directors of any other series of Preferred Stock, whether or not the
powers, preferences and rights of such other series shall be fixed by the Board
of Directors as senior to, or on a parity with, the powers, preferences and
rights of such outstanding series, or any of them; PROVIDED, HOWEVER, that the
Board of Directors may provide in such resolution or resolutions adopted with
respect to any series of Preferred Stock that the consent of holders of at least
a majority (or such greater proportion as shall be therein fixed) of the
outstanding shares of such series voting thereon shall be required for the
issuance of shares of any or all other series of Preferred Stock.
SECTION II. COMMON STOCK
(1) DIVIDENDS. Subject to any requirements with respect to
preferential or participating dividends as shall be provided by the express
terms of any outstanding series of Preferred Stock, holders of the Common Stock
shall be entitled to receive such dividends thereon, if any, as may be declared
from time to time by the Board of Directors.
(2) LIQUIDATION. In the event of liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary, holders of the
Common Stock shall be entitled to receive such assets and properties of the
Corporation, tangible and intangible, as are available for distribution to
stockholders of the Corporation, after there shall have been paid or set apart
for payment the full amounts necessary to satisfy any preferential or
participating rights to which holders of each outstanding series of Preferred
Stock are entitled by the express terms of such series.
(3) VOTING. Each share of Common Stock shall entitle the holder
thereof to one vote on each matter submitted to a vote of holders of shares of
Common Stock. Holders of shares of Common Stock shall be entitled to vote on
each matter submitted to a vote of stockholders of the Corporation, except (a)
as shall otherwise be provided with respect to the election of one or more
Directors of the Corporation by holders of shares of one or more outstanding
series of Preferred Stock under circumstances as shall be provided by the
Restated Certificate of Incorporation or by any provisions established pursuant
thereto and (b) to the extent holders of shares of one or more outstanding
series of Preferred Stock are entitled to vote separately as a class by law or
under circumstances as shall be provided by the Restated Certificate of
Incorporation or by any provisions established pursuant thereto.
SECTION III. CAPITAL STOCK
(1) REGARDING PREEMPTIVE RIGHTS. No stockholder of the
Corporation shall by reason of his holding shares of any class or series of
capital stock of the Corporation have any
5
preemptive or preferential right to purchase, acquire, subscribe for or
otherwise receive any additional, unissued or treasury shares (whether now or
hereafter acquired) of any class or series of capital stock of the Corporation
now or hereafter to be authorized, or any notes, debentures, bonds or other
securities convertible into or carrying any right, option or warrant to
purchase, acquire, subscribe for or otherwise receive shares of any class or
series of capital stock of the Corporation now or hereafter to be authorized,
whether or not the issuance of any such shares, or such notes, debentures, bonds
or other securities, would adversely affect the dividends or voting or other
rights of such stockholder, and the Board of Directors may issue or authorize
the issuance of shares of any class or series of capital stock of the
Corporation, or any notes, debentures, bonds or other securities convertible
into or carrying rights, options or warrants to purchase, acquire, subscribe for
or otherwise receive shares of any class or series of capital stock of the
Corporation, without offering any such shares of any such class, either in whole
or in part, to the existing stockholders of any such class.
(2) CUMULATIVE VOTING. Cumulative voting of shares of any class
or series of capital stock of the Corporation having voting rights is
prohibited.
FIFTH: (1) DIRECTORS. The powers of the Corporation shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed by or under the direction of, the Board of
Directors. The Board of Directors is hereby authorized and empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, subject to the provisions of the DGCL, the Restated Certificate
of Incorporation and any Bylaw of the Corporation adopted by the stockholders of
the Corporation; PROVIDED, HOWEVER, that no Bylaw of the Corporation hereafter
adopted by the stockholders of the Corporation, nor any amendment thereto, shall
invalidate any prior act of the Board of Directors that would have been valid if
such Bylaw or amendment thereto had not been adopted.
(2) NUMBER AND ELECTION OF DIRECTORS. Subject to such rights of
holders of shares of one or more outstanding series of Preferred Stock to elect
one or more Directors of the Corporation under circumstances as shall be
provided by or established pursuant to the Restated Certificate of
Incorporation, the number of Directors of the Corporation that shall constitute
the Board of Directors shall not be less than three (3) nor more than thirteen
(13) and shall be specified from time to time in the Bylaws of the Corporation.
Election of Directors of the Corporation need not be by written ballot unless
the Bylaws of the Corporation shall so provide.
(3) VACANCIES. Unless otherwise provided by the Restated
Certificate of Incorporation or by any provisions established pursuant thereto
with respect to the rights of holders of shares of one or more outstanding
series of Preferred Stock, newly created directorships resulting from any
increase in the authorized number of Directors of the Corporation and any
vacancies on the Board of Directors resulting from death, resignation or removal
of a Director of the Corporation shall be filled by (a) the affirmative vote of
at least a majority of the remaining Directors of the
6
Corporation then in office, even if such remaining Directors constitute less
than a quorum of the Board of Directors, or (b) the affirmative vote of holders
of at least a majority of the then outstanding Voting Stock (as defined below),
voting together as a single class. The term "Voting Stock" shall mean all
outstanding shares of all classes and series of capital stock of the Corporation
entitled to vote generally in the election of Directors of the Corporation,
considered as one class; and, if the Corporation shall have shares of Voting
Stock entitled to more or less than one vote for any such share, each reference
in the Restated Certificate of Incorporation to a proportion or percentage in
voting power of Voting Stock shall be calculated by reference to the portion or
percentage of votes entitled to be cast by holders of such shares generally in
the election of Directors of the Corporation.
SIXTH: From and after the first date as of which the Corporation
has a class or series of capital stock registered under the Securities Exchange
Act of 1934, as amended, no action required to be taken or that may be taken at
any annual or special meeting of the stockholders of the Corporation may be
taken without a meeting, and the power of the stockholders of the Corporation to
consent in writing to the taking of any action by written consent without a
meeting is specifically denied, except for action by unanimous written consent,
which is expressly allowed. Unless otherwise provided by the DGCL, by the
Restated Certificate of Incorporation or by any provisions established pursuant
thereto with respect to the rights of holders of one or more outstanding series
of Preferred Stock, special meetings of the stockholders of the Corporation may
be called at any time by the Chairman of the Board of Directors or by any two or
more Directors of the Corporation.
SEVENTH: No Director of the Corporation shall be personally
liable to the Corporation or any of its stockholders for monetary damages for
breach of fiduciary duty as a Director of the Corporation involving any act or
omission of any such Director; PROVIDED, HOWEVER, that this Article SEVENTH
shall not eliminate or limit the liability of such Director (1) for any breach
of such Director's duty of loyalty to the Corporation or its stockholders, (2)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (3) under Section 174 of the DGCL, as the same
exists or as such provision may hereafter be amended, supplemented or replaced,
or (4) for any transactions from which such Director derived an improper
personal benefit. If the DGCL is amended after the filing of the Restated
Certificate of Incorporation to authorize corporate action further eliminating
or limiting the personal liability of a Director of the Corporation, then the
liability of a Director of the Corporation, in addition to the limitation on
personal liability provided herein, shall be limited to the fullest extent
permitted by such law, as so amended. Any repeal or modification of this Article
SEVENTH by the stockholders of the Corporation shall be prospective only and
shall not adversely affect any limitation on the personal liability of a
Director of the Corporation existing at the time of such repeal or modification.
EIGHTH: In furtherance of, and not in limitation of, the powers
conferred by statute, the Board of Directors is expressly empowered to adopt,
amend or repeal the Bylaws of the Corporation, or adopt new Bylaws, without any
action on the part of the stockholders of the
7
Corporation. Any adoption, amendment or repeal of the Bylaws of the Corporation
by the Board of Directors shall require, in addition to any other affirmative
vote that may be required by law, the Restated Certificate of Incorporation or
the Bylaws of the Corporation, the affirmative vote of at least a majority of
the Whole Board. The term "Whole Board" shall mean the total number of Directors
of the Corporation as so fixed, whether or not there exist any vacancies in
previously authorized directorships. The stockholders of the Corporation shall
also have the power to adopt, amend or repeal the Bylaws of the Corporation, or
adopt new Bylaws, at any annual or special meeting by the affirmative vote of
holders of at least a majority of the then outstanding Voting Stock, voting
together as a single class, in addition to any other affirmative vote that may
be required by law, the Restated Certificate of Incorporation or the Bylaws of
the Corporation.
IN WITNESS WHEREOF, the Corporation has caused the Restated
Certificate of Incorporation to be signed and attested by its duly authorized
officers, this _____ day of ________________, 1996.
CORNELL CORRECTIONS, INC.
By:
David M. Cornell
Chief Executive Officer
8
EXHIBIT 3.2
DRAFT: 8/16/96
AMENDED AND RESTATED BYLAWS
OF
CORNELL CORRECTIONS, INC.
ADOPTED SEPTEMBER _____, 1996
<PAGE>
AMENDED AND RESTATED BYLAWS OF
CORNELL CORRECTIONS, INC.
Table of Contents
Page
ARTICLE I OFFICES.........................................................1
1.1 Registered Office.................................................1
1.2 Other Offices.....................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS........................................1
2.1 Place of Meetings.................................................1
2.2 Annual Meetings...................................................1
2.3 Special Meetings..................................................1
2.4 Registered Holders of Shares; Closing of
Share Transfer Records; and Record Date...........................2
2.5 Quorum............................................................2
2.6 Voting by Stockholders............................................3
2.7 Proxies...........................................................3
2.8 No Shareholder Action Without Meeting.............................4
ARTICLE III DIRECTORS.......................................................4
3.1 Number and Election of Directors..................................4
3.2. Vacancies........................................................4
3.3. Duties and Powers................................................4
3.4. Meetings.........................................................5
3.5. Quorum...........................................................5
3.6. Actions Without a Meeting........................................5
3.7. Telephonic Meetings..............................................5
3.8. Committees.......................................................5
3.9. Reimbursement of Expenses........................................6
3.10. Protection for Reliance.........................................6
ARTICLE IV OFFICERS........................................................6
4.1. General..........................................................6
4.2. Election.........................................................6
4.3. Duties...........................................................7
4.4. Chairman.........................................................7
4.5. President........................................................7
4.6. Vice Presidents..................................................7
4.7. Secretary and Assistant Secretaries..............................7
4.8. Treasurer and Assistant Treasurers...............................8
-i-
4.9. Removal..........................................................8
4.10. Voting Securities Owned by the Corporation......................8
ARTICLE V STOCK...........................................................8
5.1. Form of Certificates.............................................8
5.2. Signatures.......................................................9
5.3. Lost Certificates................................................9
5.4. Transfers........................................................9
5.5. Beneficial Ownership.............................................9
5.6. Dividends........................................................9
ARTICLE VI INDEMNIFICATION................................................10
6.1 General..........................................................10
6.2 Expenses.........................................................10
6.3 Advances.........................................................10
6.4 Request for Indemnification......................................11
6.5 Nonexclusivity of Rights.........................................11
6.9 Definitions......................................................11
ARTICLE VII NOTICES..........................................................12
7.1. Notices.........................................................12
7.2. Waiver of Notice................................................12
ARTICLE VIII MISCELLANEOUS...................................................13
8.1. Fiscal Year.....................................................13
8.2. Amendments......................................................13
-ii-
AMENDED AND RESTATED BYLAWS OF
CORNELL CORRECTIONS, INC.
ARTICLE I
OFFICES
1.1 REGISTERED OFFICE. The registered office of Cornell
Corrections, Inc., a Delaware corporation (the "Corporation"), is The
Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, County
of New Castle, State of Delaware, 19801.
1.2 OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors of the Corporation (the "Board of Directors") may from time to time
determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS. Annual or special meetings of the
stockholders for the election of directors or for any other purpose shall be
held at such time and place, either within or without the State of Delaware, as
may be designated from time to time by the Board of Directors and stated in the
notice of the meeting or in a duly executed waiver of notice thereof. If not so
designated or stated, such meeting shall be held at the registered office of the
Corporation.
2.2 ANNUAL MEETINGS. The annual meeting of stockholders shall be
held on such date and at such time as may be designated from time to time by the
Board of Directors and stated in the notice of such meeting. At the annual
meeting, the stockholders shall elect by a plurality vote a Board of Directors
and transact such other business as may properly be brought before the meeting.
Written notice of the annual meeting of stockholders of the Corporation stating
the place, date and hour of the meeting shall be sent to each stockholder
entitled to vote at such meeting not less than 10 nor more than 60 days before
the date of the meeting. Failure to hold the annual meeting shall not work a
forfeiture or dissolution of the Corporation or affect otherwise valid corporate
acts.
2.3 SPECIAL MEETINGS. Unless otherwise prescribed by the Delaware
General Corporation Law ("DGCL") or by the Certificate of Incorporation of the
Corporation (as amended or restated from time to time, the "Certificate of
Incorporation"), special meetings of stockholders of the Corporation for any
purpose or purposes may be called at any time by the Chairman of the Board of
Directors or by any two or more directors of the Corporation. Written notice of
the special meeting stating the place, date and hour of the meeting and the
purpose or purposes for which the meeting is called shall be given not less 10
nor more than 60 days before the date of the meeting to each stockholder
entitled to vote at such meeting.
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2.4 REGISTERED HOLDERS OF SHARES; CLOSING OF SHARE TRANSFER
RECORDS; AND RECORD DATE.
(a) REGISTERED HOLDERS AS OWNERS. Unless otherwise
provided under Delaware law, the Corporation may
regard the person in whose name any shares issued
by the Corporation are registered in the stock
transfer records of the Corporation at any
particular time (including, without limitation, as
of a record date fixed pursuant to paragraph (b) of
this Section 2.4) as the owner of those shares at
that time for purposes of voting those shares,
receiving distributions thereon or notices in
respect thereof, transferring those shares,
exercising rights of dissent with respect to those
shares, entering into agreements with respect to
those shares, or giving proxies with respect to
those shares; and neither the Corporation nor any
of its officers, directors, employees or agents
shall be liable for regarding that person as the
owner of those shares at that time for those
purposes, regardless of whether that person
possesses a certificate for those shares.
(b) RECORD DATE. For the purpose of determining
stockholders of the Corporation entitled to notice
of or to vote at any meeting of stockholders of the
Corporation or any adjournment thereof, or entitled
to receive a distribution by the Corporation (other
than a distribution involving a purchase or
redemption by the Corporation of any of its own
shares) or a share dividend, or in order to make a
determination of stockholders of the Corporation
for any other proper purpose, the Board of
Directors may fix in advance a date as the record
date for any such determination of stockholders of
the Corporation, such date in any case to be not
more than 60 days and, in the case of a meeting of
stockholders, not less than 10 days, prior to the
date on which the particular action requiring such
determination of stockholders of the Corporation is
to be taken. The Board of Directors shall not close
the books of the Corporation against transfers of
shares during the whole or any part of such period.
If the Board of Directors does not fix a record date for any meeting of the
stockholders of the Corporation, the record date for determining stockholders of
the Corporation entitled to notice of or to vote at such meeting shall be at the
close of business on the day next preceding the day on which notice is given,
or, if in accordance with Section 7.2 of these Bylaws notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held.
2.5 QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders of the Corporation for the transaction of business. If, however,
such quorum shall
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not be present or represented at any meeting of the stockholders of the
Corporation, the stockholders of the Corporation entitled to vote at such
meeting, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder entitled to vote at the
meeting.
2.6 VOTING BY STOCKHOLDERS.
(a) VOTING ON MATTERS OTHER THAN THE ELECTION OF
DIRECTORS. With respect to any matters as to which no other voting
requirement is specified by the DGCL, the Certificate of Incorporation
or these Amended and Restated Bylaws (these "Bylaws"), the affirmative
vote required for stockholder action shall be that of a majority of the
shares present in person or represented by proxy at the meeting (as
counted for purposes of determining the existence of a quorum at the
meeting). In the case of a matter submitted for a vote of the
stockholders of the Corporation as to which a stockholder approval
requirement is applicable under the stockholder approval policy of any
stock exchange or quotation system on which the capital stock of the
Corporation is traded or quoted, the requirements under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any provision
of the Internal Revenue Code, in each case for which no higher voting
requirement is specified by the DGCL, the Restated Certificate of
Incorporation or these Bylaws, the vote required for approval shall be
the requisite vote specified in such stockholder approval policy, the
Exchange Act or Internal Revenue Code provision, as the case may be (or
the highest such requirement if more than one is applicable). For the
approval of the appointment of independent public accountants (if
submitted for a vote of the stockholders of the Corporation), the vote
required for approval shall be a majority of the votes cast on the
matter.
(b) VOTING IN THE ELECTION OF DIRECTORS. Unless otherwise
provided in the Certificate of Incorporation or these Bylaws in
accordance with the DGCL, directors shall be elected by a plurality of
the votes cast by the holders of outstanding shares of capital stock of
the Corporation entitled to vote in the election of directors at a
meeting of stockholders at which a quorum is present.
(c) OTHER. The Board of Directors, in its discretion, or
the officer of the Corporation presiding at a meeting of stockholders of
the Corporation, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
2.7 PROXIES. Each stockholder of the Corporation entitled to vote
at a meeting of stockholders of the Corporation may authorize another person or
persons to act for him by proxy. Proxies for use at any meeting of stockholders
of the Corporation shall be filed with the Secretary, or such other officer as
the Board of Directors may from time to time determine by resolution, before
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or at the time of the meeting. All proxies shall be received and taken charge of
and all ballots shall be received and canvassed by the secretary of the meeting
who shall decide all questions relating to the qualification of voters, the
validity of the proxies and the acceptance or rejection of votes, unless an
inspector or inspectors shall have been appointed by the chairman of the
meeting, in which event such inspector or inspectors shall decide all such
questions.
2.8 NO SHAREHOLDER ACTION WITHOUT MEETING. From and after the
first date as of which the Corporation has a class or series of capital stock
registered under the Exchange Act, no action required to be taken or that may be
taken at any annual or special meeting of the stockholders of the Corporation
may be taken without a meeting, and the power of the stockholders of the
Corporation of the Corporation to consent in writing to the taking of any action
by written consent without a meeting is specifically denied, except for action
by unanimous written consent, which is expressly allowed.
ARTICLE III
DIRECTORS
3.1 NUMBER AND ELECTION OF DIRECTORS. The number of directors of
the Corporation shall be five, and thereafter such number of directors may be
increased or decreased from time to time (but not to a number greater than or
less than permitted by the Certificate of Incorporation) by an amendment to
these Bylaws. Any director of the Corporation may resign at any time upon
written notice to the Corporation. To be effective, such notice of resignation
need not be formally accepted by the Board of Directors. A director of the
Corporation need not be a stockholder of the Corporation or a resident of the
State of Delaware.
3.2. VACANCIES. Newly created directorships resulting from any
increase in the authorized number of directors of the Corporation and any
vacancies on the Board of Directors resulting from the death, resignation or
removal of a director of the Corporation shall be filled by (i) the affirmative
vote of at least a majority of the remaining directors then in office, even if
such remaining directors of the Corporation constitute less than a quorum or
(ii) the affirmative vote of holders of at least a majority of the then
outstanding Voting Stock (as defined below), voting together as a single class.
The term "Voting Stock" shall mean all outstanding shares of all classes and
series of capital stock of the Corporation entitled to vote generally in the
election of directors of the Corporation, considered as one class; and, if the
Corporation shall have shares of Voting Stock entitled to more or less than one
vote for any such share, each reference in these Bylaws to a proportion or
percentage in voting power of Voting Stock shall be calculated by reference to
the portion or percentage of votes entitled to be cast by holders of such shares
generally in the election of directors of the Corporation.
3.3. DUTIES AND POWERS. The business, affairs and property of the
Corporation shall be managed by or under the directorship of the Board of
Directors, which may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by law, the Certificate
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of Incorporation or these Bylaws authorized or required to be exercised or done
by the stockholders of the Corporation.
3.4. MEETINGS. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman, if there be one, or by the President or by any two or more
directors of the Corporation. Notice thereof stating the place, date and hour of
the meeting shall be given to each director either by mail not less than 48
hours before the date of the meeting, by telephone, telegram or facsimile on 24
hours' notice or on such shorter notice as the person or persons calling such
meeting may deem necessary or appropriate in the circumstances. Unless otherwise
required by law, neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the Board of Directors need be specified in
the notice or waiver of notice of such meeting.
3.5. QUORUM. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these Bylaws, at all meetings of the
Board of Directors, a majority of the entire Board of Directors shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
3.6. ACTIONS WITHOUT A MEETING. Unless otherwise provided by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
3.7. TELEPHONIC MEETINGS. Unless otherwise provided by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors or such committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 3.7 shall constitute presence in person at such
meeting.
3.8. COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors of the
Corporation as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a designation
by the Board of Directors of an alternate member to replace the absent or
disqualified member, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a
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quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of any absent or disqualified member. Any committee, to
the extent allowed by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation.
Each committee shall keep regular minutes and report to the Board of Directors
when required.
3.9. REIMBURSEMENT OF EXPENSES. The directors of the Corporation
shall be paid their expenses, if any, of attendance at each meeting of the Board
of Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary or other consideration as director. No
such reimbursement shall preclude any director from serving the Corporation in
any other capacity and receiving compensation therefor. Members of special or
standing committees shall be allowed like reimbursement for attending committee
meetings.
3.10. PROTECTION FOR RELIANCE. Any member of the Board of
Directors, or any member of any committee designated by the Board of Directors,
shall, in the performance of his duties, be fully protected in relying in good
faith upon the records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
ARTICLE IV
OFFICERS
4.1. GENERAL. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President and a Secretary. The Board of
Directors, in its discretion, may also choose a Chairman of the Board of
Directors, a Chief Financial Officer, a Treasurer and one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any
number of offices may be held by the same person, unless otherwise prohibited by
law, the Certificate of Incorporation or these Bylaws. The officers of the
Corporation need not be stockholders of the Corporation nor, except in the case
of the Chairman of the Board of Directors, need such officers be directors of
the Corporation.
4.2. ELECTION. The Board of Directors shall elect or appoint the
officers of the Corporation who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors; and all officers of the Corporation
shall hold office until their successors are elected and qualified, or until the
earlier of their resignation or removal. Any officer elected by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the Corporation
may be filled by the Board of Directors.
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4.3. DUTIES. The officers of the Corporation shall have such
powers and duties as generally pertain to their offices, except as modified
herein or by the Board of Directors, as well as such powers and duties as from
time to time may be conferred by the Board of Directors.
4.4. CHAIRMAN. The Chairman of the Board of Directors shall be
the Chief Executive Officer of the Corporation and, subject to the control of
the Board of Directors, shall have general supervision and control of the
business, affairs and properties of the Corporation and its general officers.
The Chairman shall possess the same power as the President to sign all
contracts, certificates and other instruments of the Corporation which may be
authorized by the Board of Directors. The Chairman shall also perform such other
duties and may exercise such other powers as from time to time may be assigned
to him by the Board of Directors.
4.5. PRESIDENT. The President shall, subject to the control of
the Board of Directors, have general supervision of the business of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. If there is no Chairman of the Board, the
President shall be the Chief Executive Officer of the Corporation; otherwise, he
shall be the Chief Operating Officer of the Corporation and shall execute all
bonds, mortgages, contracts and other instruments of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except that the other officers of the Corporation may sign and execute documents
when so authorized by these Bylaws, the Board of Directors, the Chairman of the
Board or the President. The President shall preside at all meetings of the
stockholders of the Corporation and the Board of Directors, unless the Board of
Directors has appointed a Chairman of the Board, who would preside at all such
meetings. The President shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these Bylaws or
by the Board of Directors.
4.6. VICE PRESIDENTS. At the request of the President or in his
absence or in the event of his inability or refusal to act, any Vice President
may perform the duties of the President and, when so acting, such officer shall
have all the powers of and be subject to all the restrictions upon the
President. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe. If there
is no Vice President, the Board of Directors shall designate the officer of the
Corporation who, in the absence of the President or in the event of the
inability or refusal of the President to act, shall perform the duties of the
President and, when so acting, such officer shall have all the powers of and be
subject to all the restrictions upon the President.
4.7. SECRETARY AND ASSISTANT SECRETARIES. The Secretary or an
Assistant Secretary shall attend all meetings of the Board of Directors and all
meetings of stockholders of the Corporation and record all the proceedings at
such meetings in a book or books to be kept for that purpose, and the Secretary
or an Assistant Secretary shall also perform similar duties for the standing
committees when required. The Secretary or an Assistant Secretary shall give, or
cause to be given, notice of all meetings of the stockholders of the Corporation
and special meetings of the Board of Directors, and shall perform such other
duties as may be prescribed by the Board of Directors, the Chairman of the
Board, the President or any Vice President. If a Secretary or Assistant
Secretary shall be unable or shall refuse to cause to be given notice of any
meeting of the stockholders of the
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Corporation or any special meeting of the Board of Directors, then either the
Board of Directors, the Chairman of the Board, the President or any Vice
President may choose another officer to cause such notice to be given. The
Secretary or an Assistant Secretary shall see that all corporate books, reports,
statements, certificates and other documents and records required by law to be
kept or filed are properly kept or filed, as the case may be.
4.8. TREASURER AND ASSISTANT TREASURERS. The Treasurer or an
Assistant Treasurer shall have custody of the corporate funds and securities and
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors, the Chairman of the Board, the
President or any Vice President. The Treasurer or an Assistant Treasurer shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Chairman of the Board, the President and the Board of Directors, at its
regular meetings, or when the Board of Directors so requires, an account of all
his transactions as Treasurer or Assistant Treasurer and of the financial
condition of the Corporation.
4.9. REMOVAL. Any officer may be removed, with or without cause,
by the Board of Directors. Any such removal shall be without prejudice to any
rights such officer may have pursuant to any employment contract he may have
with the Corporation. Any vacancy in an office may be filled by the Board of
Directors.
4.10. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name and
on behalf of the Corporation by the Chairman of the Board, the President or any
Vice President, and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and powers incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may, by resolution, from time
to time, confer like powers upon any other person or persons.
ARTICLE V
STOCK
5.1. FORM OF CERTIFICATES. The shares of stock of the Corporation
shall be represented by certificates of stock, signed in the name of the
Corporation (i) by the Chairman of the Board, the President or a Vice President
and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary, of the Corporation, certifying the number of shares of
stock in the Corporation owned by the holder named in the certificate.
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5.2. SIGNATURES. Where a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employee or (ii) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
5.3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the delivery to
the Secretary of the Corporation of an affidavit of the fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or his legal
representative, to advertise the same in such manner as the Board of Directors
shall require and/or to give the Corporation a bond in such sum as it may direct
as indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
5.4. TRANSFERS. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these Bylaws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall be
issued.
5.5. BENEFICIAL OWNERSHIP. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
5.6. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special meeting
thereof, and may be paid in cash, in property or in shares of capital stock of
the Corporation. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
Board of Directors from time to time, in its absolute discretion, deems proper
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
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ARTICLE VI
INDEMNIFICATION
6.1 GENERAL. The Corporation shall indemnify and hold harmless an
Indemnitee (as this and all other capitalized words used in this Article VI not
previously defined in these Bylaws are defined in Section 6.6 hereof) from and
against any and all judgments, penalties, fines (including excise taxes),
amounts paid in settlement and, subject to Section 6.2, Expenses (including all
interest, assessments and other charges paid or payable in connection with or in
respect of such judgments, fines, penalties, amounts paid in settlement or
Expenses) arising out of any event or occurrence related to the fact that
Indemnitee is or was a director or officer of the Corporation. The Corporation
may, but shall not be required to, indemnify and hold harmless an Indemnitee
from and against any and all judgments, penalties, fines (including excise
taxes), amounts paid in settlement and, subject to Section 6.2, Expenses
(including all interest, assessments and other charges paid or payable in
connection with or in respect of such judgments, fines, penalties, amounts paid
in settlement or Expenses) arising out of any event or occurrence related to the
fact that Indemnitee is or was an employee or agent of the Corporation or is or
was serving in another Corporate Status.
6.2 EXPENSES. If Indemnitee is, by reason of his serving as a
director, officer, employee or agent of the Corporation, a party to and is
successful, on the merits or otherwise, in any Proceeding, the Corporation shall
indemnify him against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to any Matter
in such Proceeding, the Corporation shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf relating to
such Matter. The termination of any Matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
Matter. If Indemnitee is, by reason of any Corporate Status other than his
serving as a director, officer, employee or agent of the Corporation, a party to
and is successful, on the merits or otherwise, in any Proceeding, the
Corporation may, but shall not be required to, indemnify him against all
Expenses actually and reasonably incurred by him or on his behalf in connection
therewith. To the extent that the Indemnitee is, by reason of his Corporate
Status, a witness in any Proceeding, the Corporation may, but shall not be
required to, indemnify him against all Expenses actually and reasonably incurred
by him or on his behalf in connection therewith.
6.3 ADVANCES. In the event of any threatened or pending
Proceeding in which Indemnitee is a party or is involved and that may give rise
to a right of indemnification under this Article VI, following written request
to the Corporation by Indemnitee, the Corporation may, but shall not be required
to, pay to Indemnitee amounts to cover Expenses reasonably incurred by
Indemnitee in such Proceeding in advance of its final disposition upon the
receipt by the Corporation of (i) a written undertaking executed by or on behalf
of Indemnitee providing that Indemnitee will repay the advance if it shall
ultimately be determined that Indemnitee is not entitled to be indemnified by
the Corporation as provided in these Bylaws and (ii) satisfactory evidence as to
the amount of such Expenses.
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6.4 REQUEST FOR INDEMNIFICATION. To request indemnification,
Indemnitee shall submit to the Secretary of the Corporation a written claim or
request. Such written claim or request shall contain sufficient information to
reasonably inform the Corporation about the nature and extent of the
indemnification or advance sought by Indemnitee. The Secretary of the
Corporation shall promptly advise the Board of Directors of such request.
6.5 NONEXCLUSIVITY OF RIGHTS. This Article VI shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled to
under applicable law, the Restated Certificate of Incorporation, these Bylaws,
any agreement, a vote of stockholders or a resolution of directors of the
Corporation, or otherwise. No amendment, alteration or repeal of this Article VI
or any provision hereof shall be effective as to any Indemnitee for acts, events
and circumstances that occurred, in whole or in part, before such amendment,
alteration or repeal. The provisions of this Article VI shall continue as to an
Indemnitee whose Corporate Status has ceased for any reason and shall inure to
the benefit of his heirs, executors and administrators. Neither the provisions
of this Article VI nor those of any agreement to which the Corporation is a
party shall be deemed to preclude the indemnification of any person who is not
specified in this Article VI as having the potential to receive indemnification
or is not a party to any such agreement, but whom the Corporation has the power
or obligation to indemnify under the provisions of the DGCL.
6.6 INSURANCE AND SUBROGATION. To the extent the Corporation
maintains an insurance policy or policies providing liability insurance for
directors or officers of the Corporation, an Indemnitee who is a director or
officer of the Corporation shall be covered by such policy or policies in
accordance with its or their terms to the maximum extent of coverage available
for any such director or officer under such policy or policies. In the event of
any payment hereunder, the Corporation shall be subrogated to the extent of such
payment to all the rights of recovery of Indemnitee, who shall execute all
papers required and take all action necessary to secure such rights, including
execution of such documents as are necessary to enable the Corporation to bring
suit to enforce such rights. The Corporation shall not be liable under this
Article VI to make any payment of amounts otherwise indemnifiable hereunder if,
and to the extent that, Indemnitee has otherwise actually received such payment
under any insurance policy, contract, agreement or otherwise.
6.7 SEVERABILITY. If any provision or provisions of this Article
VI shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby; and, to the
fullest extent possible, the provisions of this Article VI shall be construed so
as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
6.8 CERTAIN PERSONS NOT ENTITLED TO INDEMNIFICATION.
Notwithstanding any other provision of this Article VI, no person shall be
entitled to indemnification or advancement of Expenses under this Article VI
with respect to any Proceeding, or any Matter therein, brought or made by such
person against the Corporation.
6.9 DEFINITIONS. For purposes of this Article VI:
-11-
(a) "CORPORATE STATUS" describes the status of a person
who is or was a director, officer, employee or agent of the Corporation
or of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such person is or was serving at
the written request of the Corporation. For purposes of this Agreement,
"serving at the written request of the Corporation" includes any service
by Indemnitee which imposes duties on, or involves services by,
Indemnitee with respect to any employee benefit plan or its participants
or beneficiaries.
(b) "EXPENSES" shall include all reasonable attorneys'
fees, retainers, court costs, transcript costs, fees of experts, witness
fees, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, and all other
disbursements or expenses of the types customarily incurred in
connection with prosecuting, defending, preparing to prosecute or
defend, investigating, or being or preparing to be a witness in a
Proceeding.
(c) "INDEMNITEE" includes any person who is, or is
threatened to be made, a witness in or a party to any Proceeding as
described in Section 6.1 or 6.2 hereof by reason of his Corporate
Status.
(d) "MATTER" is a claim, a material issue or a substantial
request for relief.
(e) "PROCEEDING" includes any action, suit, alternate
dispute resolution mechanism, hearing or any other proceeding, whether
civil, criminal, administrative, arbitrative, investigative or
mediative, any appeal in any such action, suit, alternate dispute
resolution mechanism, hearing or other proceeding and any inquiry or
investigation that could lead to any such action, suit, alternate
dispute resolution mechanism, hearing or other proceeding, except one
initiated by an Indemnitee to enforce his rights under this Article VI.
ARTICLE VII
NOTICES
7.1. NOTICES. Whenever written notice is required by law, the
Certificate of Incorporation or these Bylaws to be given to any director, member
of a committee or stockholder, such notice may be given by mail, addressed to
such director, member of a committee or stockholder at his address as it appears
on the records of the Corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Written notice may also be given personally or by telegram,
telex, facsimile or cable.
7.2. WAIVER OF NOTICE. Whenever any notice is required by law,
the Certificate of Incorporation or these Bylaws to be given to any director,
member of a committee or stockholder of the Corporation, a waiver thereof in
writing, signed by the person or persons entitled to said notice, whether before
or after the time stated therein, shall be deemed equivalent thereto.
-12-
ARTICLE VIII
MISCELLANEOUS
8.1. FISCAL YEAR. The fiscal year of the Corporation shall end on
December 31 of each year.
8.2. AMENDMENTS. These Bylaws may be altered, amended or
repealed, in whole or in part, or new Bylaws may be adopted, by the stockholders
of the Corporation or by the Board of Directors as provided in the Certificate
of Incorporation.
Adopted September _____, 1996
-13-
INCORPORATED UNDER THE
LAWS OF THE STATE OF DELAWARE
COMMON STOCK PAR VALUE $.001
CUSIP 219141 10 8
THIS CERTIFICATE IS TRANSFERABLE
IN NEW YORK, NY AND __________, ___ SEE REVERSE FOR CERTIAN DEFINITIONS
CORNELL CORRECTIONS, INC.
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK OF
CORNELL CORRECTIONS, INC. transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be held subject to the provisions of the laws of the
State of Delaware and to all of the provisions of the Restated Certificate of
Incorporation and Bylaws of the Corporation, as amended from time to time
(copies of which are on file at the office of the Corporation), to all of which
the holder of this Certificate by acceptance hereof assents. This Certificate is
not valid until countersigned by the Transfer Agent and registered by the
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated: COUNTERSIGNED AND REGISTERED:
American Securities Transfer & Trust, Inc
TRANSFER AGENT
AND REGISTRAR
BY
- ------------------------ ------------------------ --------------------------
CHAIRMAN, PRESIDENT AND CHIEF FINANCIAL OFFICER, AUTHORIZED SIGNATURE
CHIEF EXECUTIVE OFFICER TREASURER AND SECRETARY
CORNELL CORRECTIONS, INC.
The Corporation is authorized to issue Common Stock, par value $.001 per
share, and Preferred Stock, par value $.001 per share. The Board of Directors of
the Corporation has authority to fix the number of shares and the designation of
any series of Preferred Stock and to determine the powers, designations,
preferences and relative, participating, optional or other rights between
classes of stock or series thereof of the Corporation, and the qualifications,
limitations or restrictions of such preferences and/or rights. The Corporation
will furnish without charge to each stockholder who so requests a full statement
of the foregoing as established from time to time by the Restated Certificate of
Incorporation of the Corporation and by any certificate of designation. Any such
request should be made to the Secretary of the Corporation at the offices of the
Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM-- as tenants in common UNIF GIFT MIN ACT --_____ Custodian_____
TEN ENT-- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right Under Uniform Gifts to Minors
of survivorship and not as Act__________________
tenants in common (State)
UNIT TRF MIN ACT -- ______ Custodian (until age ____)
(Cust)
______ Minor Under Uniform Transfer
to Minors Act ______________
(State)
Additional abbreviations may also be used though not in the above list.
ASSIGNMENT
For Value Received, ______________________________________hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE,
OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said shares of Common Stock on the books of the within-named
Corporation, with full power of substitution in the premises.
Dated
X
-----------------------------------
(SIGNATURE)
X
-----------------------------------
(SIGNATURE)
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE
WHATSOEVER.
THE SIGNATURES SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE PROGRAM,
PURSUANT TO S.E.C.
RULE 17Ad-15.
SIGNATURE(S) GUARANTEED BY:
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement, dated as of March 31, 1994,
between Cornell Cox, Inc., a Delaware corporation (the "Company"), the
"Investors", as hereinafter defined, David Cornell and Norman Cox.
W I T N E S S E T H:
WHEREAS, the Company and the Investors (other than Concord
Partners) have entered into a Securities Purchase Agreement (the "Purchase
Agreement"), dated as of the date hereof, pursuant to which the Company has
agreed, among other things, to issue and sell to the Investors, and the
Investors have agreed to purchase from the Company, 1,036,922 shares of the
Company's common stock, par value $.01 per share (the "Common Stock"); and
WHEREAS, in order to induce the Investors to enter into the
Purchase Agreement (and to purchase such shares of Common Stock) the Company has
agreed to provide certain registration rights with respect thereto;
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, it
is agreed as follows:
1. DEFINITIONS. Unless otherwise defined herein, terms defined in the Purchase
Agreement are used herein as therein defined, and the following shall have
(unless otherwise provided elsewhere in this Registration Rights Agreement) the
following respective meanings (such meanings being equally applicable to both
the singular and plural form of the terms defined):
"Agreement" shall mean this Registration Rights Agreement,
including all amendments, modifications and supplements and any exhibits or
schedules to any of the foregoing, and shall refer to the Agreement as the same
may be in effect at the time such reference becomes operative.
1
"Investors" shall mean Charterhouse Equity Partners II, L.P.,
Concord Partners, Concord Partners II, L.P., Concord Partners Japan Limited,
Dillon Read & Co., Inc., as Agent, Lexington Partners III, L.P., Lexington
Partners IV, L.P. and Brown University Third Century Fund.
"NASD" shall mean the National Association of Securities Dealers,
Inc., or any successor corporation thereto.
"Registrable Securities" shall mean, collectively, (i) the shares
of Common Stock issued and sold to the Investors pursuant to the Purchase
Agreement (including, without limitation, any shares issued pursuant to Article
VI thereof), (ii) any shares of Common Stock hereafter acquired by any Investor,
Cornell or Cox either by means of exercising its preemptive rights in accordance
with Section 4 of the Stockholders Agreement or in any other manner, (iii) any
shares of Common Stock received by any Investor, Cornell or Cox in respect of
its partnership interests in The Cornell Cox Group, L.P., the Company's
predecessor and, (iv) any shares of Common Stock hereafter distributed to any
Investor, Cornell or Cox by the Company as a stock dividend or otherwise;
PROVIDED, HOWEVER, that any such securities shall cease to be Registrable
Securities when (i) such securities shall have been registered under the
Securities Act, the registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of pursuant to such effective registration
statement, (ii) such securities shall have been otherwise transferred, if new
certificates or other evidences of ownership for them not bearing a legend
restricting further transfer and not subject to any stop transfer order or other
restrictions on transfer shall have been delivered by the Company and subsequent
disposition of such securities shall not require registration or qualification
of such securities under the Securities Act or any state securities law then in
force or (iii) such securities shall cease to be outstanding.
2. REQUIRED REGISTRATION. From and after the Closing Date after
receipt of a written request (the "Registration Request") from (i) Investors
collectively holding at least 50% of the Registrable Securities then held by the
Investors at the time of such request if such request occurs prior to the third
anniversary of the Closing Date or (ii) Holders of Registrable
2
Securities holding at least 15% of the outstanding Registrable Securities of the
Company if such request occurs thereafter, requesting that the Company effect
the registration of Registrable Securities under the Securities Act and
specifying the intended method or methods of disposition thereof, the Company
shall promptly notify all holders of Registrable Securities in writing of the
receipt of such request and each such holder may elect (by written notice sent
to the Company within ten days from the date of such holder's receipt of the
aforementioned Company's notice) to have all or any part of its Registrable
Securities included in such registration thereof pursuant to this Section 2.
Thereupon the Company shall, as expeditiously as is possible, use its best
efforts to effect the registration under the Securities Act of all shares of
Registrable Securities which the Company has been so requested to register by
such holders for sale, all to the extent required to permit the disposition (in
accordance with the intended method or methods thereof, as aforesaid) of the
Registrable Securities so registered; PROVIDED, HOWEVER, that, subject to the
provisions of the immediately following sentence, the Company shall not be
required to effect more than two registration statements of Registrable
Securities pursuant to clauses (i) or (ii) above and provided further that in
the event more than one registration is available to be requested pursuant to
clause (ii) above no more than one such registration may be requested by Cornell
and/or Cox. In order to count as an "effected" registration statement, such
registration statement shall not have been withdrawn and all shares registered
pursuant to it (excluding any overallotment shares) shall have been sold. The
Company shall have the right to defer the filing of any registration statement
requested pursuant to this Section 2 for a period not to exceed ninety (90) days
if in the good faith determination of the Board of Directors of the Company the
filing of such registration statement would be seriously detrimental to the
Company.
3. INCIDENTAL REGISTRATION. If Company at any time proposes to
file on its behalf and/or on behalf of any of its security holders ("the
registering security holders") a Registration Statement under the Securities Act
on any form (other than a Registration Statement on Form S-4 or S-8 or any
successor form for securities to be offered in a transaction of the type
referred to in Rule 145 under the Securities Act or to employees of the Company
pursuant to any employee benefit plan, respectively) for the general
registration of securities to be
3
sold for cash with respect to its Common Stock or any other class of equity
security (as defined in Section 3(a)(11) of the Securities Exchange Act) of the
Company, it will give written notice to all holders of Registrable Securities at
least 30 days before the initial filing with the Commission of such Registration
Statement, which notice shall set forth the intended method of disposition of
the securities proposed to be registered by the Company. The notice shall offer
to include in such filing the aggregate number of shares of Registrable
Securities as such holders may request.
Each holder of any such Registrable Securities desiring to have
Registrable Securities registered under this Section 3 shall advise the Company
in writing within 10 days after the date of receipt of such offer from the
Company, setting forth the amount of such Registrable Securities for which
registration is requested. The Company shall thereupon include in such filing
the number of shares of Registrable Securities for which registration is so
requested, subject to the next sentence, and shall use its best efforts to
effect registration under the Securities Act of such shares. If the managing
underwriter of a proposed public offering shall advise the Company in writing
that, in its opinion, the distribution of the Registrable Securities requested
to be included in the registration concurrently with the securities being
registered by the Company or such registering security holder would materially
and adversely affect the distribution of such securities by the Company or such
registering security holder, then all selling security holders (other than any
Investors who initially requested the registration of their securities pursuant
to Section 2 hereof) shall reduce the amount of securities each intended to
distribute through such offering on a pro rata basis. In the event that Cornell
or Cox request a registration statement pursuant to Section 2 hereof any
required reductions shall be done on a pro rata basis among Cornell, Cox and any
Investors desiring to include Registratble Securities.
4. REGISTRATION PROCEDURES. If the Company is
required by the provisions of Section 2 or 3 to use its best
efforts to effect the registration of any of its securities under
the Securities Act, the Company will, as expeditiously as
possible:
4
(a) prepare and file with the Commission a
Registration Statement with respect to such securities and use its best efforts
to cause such Registration Statement to become and remain effective for a period
of time required for the disposition of such securities by the holders thereof,
but not to exceed 180 days;
(b) prepare and file with the Commission such
amendments and supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective and to comply with the provisions of the Securities Act with
respect to the sale or other disposition of all securities covered by such
Registration Statement until the earlier of such time as all of such securities
have been disposed of in a public offering or the expiration of 180 days;
(c) furnish to such selling security holders such
number of copies of a summary prospectus or other prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents, as such selling security holders may reasonably
request;
(d) use its best efforts to register or qualify
the securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions within the United States and
Puerto Rico as each holder of such securities shall request (PROVIDED, HOWEVER,
that the Company shall not be obligated to qualify as a foreign corporation to
do business under the laws of any jurisdiction in which it is not then qualified
or to file any general consent to service of process), and do such other
reasonable acts and things as may be required of it to enable such holder to
consummate the disposition in such jurisdiction of the securities covered by
such Registration Statement;
(e) furnish, in connection with any registration
of Registrable Securities, on the date that such shares of Registrable
Securities are delivered to the underwriters for sale pursuant to such
registration or, if such Registrable Securities are not being sold through
underwriters, on the date that the Registration Statement with respect to such
shares of Registrable Securities becomes effective, (1) an opinion, dated such
date, of the independent counsel representing the Company for the purposes
5
of such registration, addressed to the underwriters, if any, and if such
Registrable Securities are not being sold through underwriters, then to the
holders making such request, in customary form and covering matters of the type
customarily covered in such legal opinions; and (2) a comfort letter dated such
date, from the independent certified public accountants of the Company,
addressed to the underwriters, if any, and if such Registrable Securities are
not being sold through underwriters, then to the holder(s) of Registrable
Securities being registered and, if such accountants refuse to deliver such
letter to such holder(s), then to the Company in a customary form and covering
matters of the type customarily covered by such comfort letters and as the
underwriters or such holder(s) shall reasonably request. Such opinion of counsel
shall additionally cover such other legal matters with respect to the
registration in respect of which such opinion is being given as such holder(s)
of Registrable Securities may reasonably request consistent with opinions
customarily provided in similar transactions. Such letter from the independent
certified public accountants shall additionally cover such other financial
matters (including information as to the period ending not more than 5 business
days prior to the date of such letter) with respect to the registration in
respect of which such letter is being given as such holders of the Registrable
Securities being so registered may reasonably request consistent with comfort
letters customarily provided in similar transactions;
(f) enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of such
Registrable Securities; and
(g) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, but not later than 18
months after the effective date of the Registration Statement, an earnings
statement covering the period of at least 12 months beginning with the first
full month after the effective date of such Registration Statement, which
earnings statements shall satisfy the provisions of Section 11(a) of the
Securities Act.
It shall be a condition precedent to the obligation of
the Company to take any action pursuant to this Agreement in
6
respect of the securities which are to be registered at the request of any
holder of Registrable Securities that such holder shall furnish to the Company
such information regarding the securities held by such holder and the intended
method of disposition thereof as the Company shall reasonably request and as
shall be required under the Securities Act in connection with the action taken
by the Company.
5. EXPENSES. All expenses incurred in complying with this
Agreement, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the NASD), printing expenses,
fees and disbursements of counsel for the Company, expenses of any special
audits incident to or required by any such registration and expenses of
complying with the securities or blue sky laws of any jurisdictions pursuant to
Section 4(d), shall be paid by the Company, except that
(a) The Company shall not be liable for any fees,
discounts or commissions to any underwriter in respect of the
securities sold by such holder of Registrable Securities; and
(b) The Company shall not be liable for any fees
or expenses of counsel to the selling security holders (other than one (1)
counsel for the selling security holders as a group).
6. INDEMNIFICATION AND CONTRIBUTION. (a) In the event of any
registration of any Registrable Securities under the Securities Act pursuant to
this Agreement, the Company shall indemnify and hold harmless the holder of such
Registrable Securities, such holder's directors and officers, and each other
Person (including each underwriter) who participated in the offering of such
Registrable Securities and each other Person, if any, who controls such holder
or such participating Person within the meaning of the Securities Act, against
any losses, claims, damages or liabilities, joint or several, to which such
holder or any such director or officer or participating Person or controlling
Person may become subject under the Securities Act or any other statute or at
common law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any alleged untrue
statement of any material fact contained in any Registration Statement under
which such securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained
7
therein, or any amendment or supplement thereto, or (ii) any alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and shall reimburse such holder or such
director, officer or participating Person or controlling Person for any legal or
any other expenses reasonably incurred by such holder or such director, officer
or participating Person or controlling Person in connection with investigating
or defending any such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
any alleged untrue statement or alleged omission made in such Registration
Statement, preliminary prospectus, prospectus or amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by such holder specifically for use therein. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf of
such holder or such director, officer or participating Person or controlling
Person, and shall survive the transfer of such securities by such holder.
(b) In the event of any registration of any
Registrable Securities under the Securities Act pursuant to this Agreement, each
Selling Holder of Registrable Securities severally and not jointly shall
indemnify and hold harmless the Company, its directors and officers, and each
other Person (in cluding each underwriter) who participated in the offering of
such Registrable Securities and each other Person, if any, who controls the
Company or such participating Person within the meaning of the Securities Act,
against any losses, claims, dam ages or liabilities, joint or several, to which
the Company or any such director or officer or participating Person or
controlling Person may become subject under the Securities Act or any other
statute or at common law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any alleged
untrue statement of any material fact contained in any Registration Statement
under which such securities were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, where such statement is in conformity with written
information provided by such Holder expressly for use therein, and shall
reimburse the Company or such director, officer or participating Person or
controlling Person for any legal or any other expenses reasonably incurred by
8
the Company or such director, officer or participating Person or controlling
Person in connection with investigating or defending any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that such Holder shall not be
liable for any amounts in excess of the net proceeds received by such Holder for
the sale of its shares. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or such
director, officer or participating Person or controlling Person, and shall
survive the transfer of such securities by such holder.
(c) If the indemnification provided for in this
Section 6 is unavailable to an indemnified party hereunder in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses in such proportion as
is appropriate to reflect the relative fault of the indemnifying party and
indemnified parties in connection with the actions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 6(c) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall
9
be entitled to contribution from any Person who was not also
guilty of such fraudulent misrepresentation.
7. MARKET STAND-OFF AGREEMENT. If requested by an
underwriter of securities of the Company each holder of
Registrable Securities shall not sell or otherwise transfer or
dispose of any securities held by such holder during the 90 day
period following the effective date of a Registration Statement.
8. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. This agreement
supersedes all prior agreements regarding registration rights between the
Company and any of the parties hereto and all such prior agreements are deemed
terminated hereby. The Company is a party to no other agreements regarding
registration rights which have not heretofore been terminated. The Company will
not hereafter enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the holders of Registrable Securities in
this Agreement. It is understood and agreed that the Company shall not enter
into any agreement other than this Agreement pursuant to which any holder of
securities is given the right to require that such holder's securities be
registered under the Securities Act.
(b) REMEDIES. Each holder of Registrable
Securities, in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
the provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
(c) AMENDMENTS AND WAIVERS. Except as otherwise
provided herein, the provisions of this Agreement may not be amended, modified
or supplemented, and waivers or consents to departure from the provisions hereof
may not be given unless Company has obtained the written consent of each of the
Investors.
(d) NOTICES. Any notice, demand, request,
consent, approval, declaration, delivery or other communication
10
hereunder to be made pursuant to the provisions of this Agreement shall be
sufficiently given or made if in writing and (i) delivered in person with
receipt acknowledged, (ii) sent by registered or certified mail, return receipt
requested, postage prepaid, (iii) sent by overnight courier with guaranteed
next-day delivery, or (iv) sent by telex or telecopier, in each case addressed
as follows:
(i) If to Charterhouse to it at:
Charterhouse Equity Partners II, L.P.
535 Madison Avenue
New York, NY 10022-4299
Attention: Richard T. Henshaw
Fax: (212) 750-9704
(ii) If to any Dillon Read entity to it at:
Dillon Read & Co. Inc.
535 Madison Avenue
New York, New York 10022
Attention: Peter Leidel
Fax: (212) 308-5107
(i) If to the Investors at the address
provided to the Company.
with a copy to:
Proskauer Rose Goetz & Mendelsohn
1585 Broadway
New York, New York 10036
Attention: Stephen W. Rubin, Esq.
(ii) If to Company, Cornell or Cox at:
Cornell Cox Group
4801 Woodway
Suite 400W
Houston, Texas 77056
Fax: (713) 623-2853
with a copy to:
11
Baker & Botts
910 Louisiana
Houston, Texas 77002
Attention: Walter Smith, Esq.
Fax: (713) 229-1522
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, or three (3) Business Days after the same
shall have been deposited in the United States mail, one business day after sent
by overnight courier or on the day telexed or telecopied.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall
inure to the benefit of and be binding upon (i) the successors of each of the
parties hereto and (ii) the assigns of the holders of Registrable Securities
including any Person to whom Registrable Securities are transferred.
(f) HEADINGS. The headings in this Agreement are
for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.
(g) GOVERNING LAW. This Agreement shall be
governed by the laws of the State of New York, without regard to the provisions
thereof relating to conflict of laws.
(h) SEVERABILITY. Wherever possible, each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
(i) ENTIRE AGREEMENT. This Agreement, together
with the Purchase Agreement and Stockholders Agreement,
represents the complete agreement and understanding of the
12
parties hereto in respect of the subject matter contained herein and therein.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to the subject matter hereof. Notwithstanding anything
herein to the contrary, this Agreement shall not become effective until the
consummation of the transactions contemplated by the Purchase Agreement.
IN WITNESS WHEREOF, Company, the Investors, Cornell and Cox have
executed this Registration Rights Agreement as of the date first above written.
CORNELL COX, INC.
By: /s/ DAVID M. CORNELL
Title: Chairman
/s/ DAVID M. CORNELL
David M. Cornell
/s/ NORMAN R. COX
Norman R. Cox
CONCORD PARTNERS
By: /s/ PETER A. LEIDEL
Title:
CONCORD PARTNERS II, L.P.
By: /s/ PETER A. LEIDEL
Title:
CONCORD PARTNERS JAPAN LIMITED
By: /s/ PETER A. LEIDEL
Title:
DILLON READ & CO., INC., as Agent
By: /s/ PETER A. LEIDEL
Title:
13
LEXINGTON PARTNERS III, L.P.
By: /s/ PETER A. LEIDEL
Title:
LEXINGTON PARTNERS IV, L.P.
By: /s/ PETER A. LEIDEL
Title:
BROWN UNIVERSITY THIRD CENTURY FUND
By: /s/ ROBERT J. KOLYER, JR.
Title: Treasurer
CHARTERHOUSE EQUITY
PARTNERS II, L.P.
By: Chusa Equity
Investors II, L.P.,
as general partner
By: Charterhouse Equity II, Inc.,
as general partner
By: /s/ RICHARD T. HENSHAW III
Title: Senior Vice President
14
AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT
This amendment, dated as of March 14, 1995, to the Registration Rights
Agreement (the "Amendment") dated as of March 31, 1994 is entered into by and
among Cornell Cox, Inc., a Delaware corporation (the "Company"), the Investors
(as originally defined in the Registration Rights Agreement), David Cornell,
Norman Cox and Internationale Nederlanden (U.S.) Capital Corporation ("ING").
Whereas, the Company, the Investors, David Cornell and Norman Cox
entered into that certain Registration Rights Agreement dated as of March 31,
1994 (the "Registration Agreement").
Whereas, contemporaneously with the execution of this Amendment, the
Company and ING have entered into that certain Credit Agreement dated as of the
date hereof by and among the Company, its subsidiaries, as guarantors, ING and
other lenders who are signatories to the Credit Agreement (the "Credit
Agreement") pursuant to which ING shall provide credit to the Company in the
aggregate amount of $15 million.
Whereas, in connection with a recapitalization of the Company effected
March 8, 1995, all outstanding shares of the Company's common stock have been
converted into shares of Class A Common Stock (the "Class A Common Stock").
Whereas, in connection with the Credit Agreement, the Company and ING
have entered into that certain Warrant Issuance Agreement dated as of the date
hereof (the "Warrant Agreement"), pursuant to which the Company shall issue
warrants to ING for 162,500 shares of Class B Common Stock of the Company (the
"Class B Common Stock"), as more particularly set forth in the Warrant
Agreement. As used herein, the terms "Warrant" and "Warrant Shares" shall have
their respective meanings as set forth in the Warrant Agreement.
Whereas, the Company has agreed to provide ING or any other holders of
the Warrants or the Warrant Shares (the "Warrant Holders") registration rights
for the Warrant Shares;
Now, therefore, in connection with the foregoing, the parties hereto
wish to amend the Registration Agreement as follows:
1. An references to Common Stock in the Registration Agreement shall
be deemed to refer to Class A Common Stock.
2. The recitals in the Registration Agreement shall be amended to
read as follows:
WHEREAS, the Company and the Investors (other than Concord
Partners and Internationale Nederlanden (U.S.) Capital
Corporation ("ING")) have entered into a Securities Purchase
Agreement (the"Purchase Agreement"), dated as of March 31, 1994,
pursuant to which the Company, among other things, issued and
sold
-1-
to the Investors, and the Investors purchased from the Company,
certain shares of the Company's common stock (the "Common
Stock"); and
WHEREAS, the Company and ING have entered into a Warrant
Issuance Agreement dated as of March __, 1995 (the "Warrant
Agreement"), pursuant to which the Company has agreed to issue
warrants to ING for 162,500 shares of Class B Common Stock of the
Company (the "Warrants"). As used herein, the term "Warrant
Shares" shall have the meaning set forth in the Warrant
Agreement, and the term "Warrant Holders" shall mean ING or any
other holders of the Warrants or the Warrant Shares; and
WHEREAS, in order to induce (a) the Investors (other than
ING) to enter into the Purchase Agreement (and to purchase such
shares of Common Stock) and (b) ING to enter into the Warrant
Issuance Agreement, the Company has agreed to provide certain
registration rights with respect to the Common Stock and the
Warrant Shares;
3. The definition of "Investors" in Section 1 of the Registration
Agreement shall be amended to read as follows:
"Investors" shall mean Charterhouse Equity Partners II, L.P.,
Chef Nominees Limited, Concord Partners, Concord Partners II,
L.P., Concord Partners Japan Limited, Dillon Read & Co., Inc., as
Agent, Lexington Partners III, L.P., Lexington Partners IV, L.P.,
Brown University Third Century Fund and the Warrant Holders.
4. The definition of "Registrable Securities" shall be amended to
read as follows:
"Registrable Securities" shall mean, collectively, (i) the shares
of Common Stock issued and sold to the Investors (excluding the
Warrant Holders) pursuant to the Purchase Agreement (including,
without limitation, any shares issued pursuant to Article VI
thereof), (ii) any shares of Common Stock hereafter acquired by
any Investor, Cornell or Cox either by means of exercising its
preemptive rights in accordance with Section 4 of the Amended and
Restated Stockholders Agreement or in any other manner, (iii) any
shares of Common Stock received by any Investor, Cornell or Cox
in respect of its partnership interests in The Cornell Cox Group,
L.P., the Company's predecessor, (iv) any shares of Common Stock
hereafter distributed to any Investor, Cornell or Cox by the
Company as a stock dividend or otherwise, and (v) the Warrant
Shares; PROVIDED, HOWEVER, that any
-2-
such securities shall cease to be Registrable Securities when (i)
such securities shall have been registered under the Securities
Act, the registration statement with respect to the sale of such
securities shall have become effective under the Securities Act
and such securities shall have been disposed of pursuant to such
effective registration statement, (ii) such securities shall have
been otherwise transferred, if new certificates or other
evidences of ownership for them not bearing a legend restricting
further transfer and not subject to any stop transfer order or
other restrictions on transfer shall have been delivered by the
Company and subsequent disposition of such securities shall not
require registration or qualification of such securities under
the Securities Act or any state securities law then in force or
(iii) such securities shall cease to be outstanding
5. Section 2 of the Registration Agreement shall be amended to read
as follows:
2. REQUIRED REGISTRATION. From and after the Closing Date
after receipt of a written request (the "Registration Request")
from (i) Investors collectively holding at least 50% of the
Registrable Securities then held by the Investors at the time of
such request if such request occurs prior to the third
anniversary of the Closing Date, or (ii) Holders of Registrable
Securities holding at least 15% of the outstanding Registrable
Securities of the Company if such request occurs thereafter, or
(iii) Warrant Holders collectively holding at least 50% of the
Warrant Shares issued or issuable upon exercise of the Warrants
at the time of such request if such request occurs upon the
expiration of the six month period immediately following the
consummation of an initial public offering of shares of Common
Stock by the Company in which fewer than 75% of the Warrant
Shares were sold, requesting that the Company effect the
registration of Registrable Securities under the Securities Act
and specifying the intended method or methods of deposition
thereof, the Company shall promptly notify all holders of
Registrable Securities in writing of the receipt of such request
and each such holder may elect (by written notice sent to the
Company within ten days from the date of such holder's receipt of
the aforementioned Company's notice) to have all or any part of
its Registrable Securities included in such registration thereof
pursuant to this Section 2. Thereupon the Company shall, as
expeditiously as is possible, use its best efforts to effect the
registration under the Securities Act of all shares of
Registrable Securities which the Company has been so requested to
register by such holders for sale, all to the extent required to
permit the disposition (in accordance with the intended method or
methods thereof, as aforesaid) of the Registrable Securities so
registered;
-3-
PROVIDED, HOWEVER, that, subject to the provisions of the
immediately following sentence, the Company shall not be required
to effect more than two registration statements of Registrable
Securities pursuant to clauses (i) or (ii) above or more than one
registration pursuant to clause (iii) above and, provided further
that in the event more than one registration is available to be
requested pursuant to clause (ii) above no more than one such
registration may be requested by Cornell and/or Cox. In order to
count as an "effected" registration statement, such registration
statement shall not have been withdrawn and all shares registered
pursuant to it (excluding any overallotment shares) shall have
been sold. The Company shall have the right to defer the filing
of any registration statement requested pursuant to this Section
2 for a period not to exceed ninety (90) days if in the good
faith determination of the Board of Directors of the Company the
filing of such registration statement would be seriously
detrimental to the Company.
6. Section 8(d) of the Registration Agreement shall be amended to
read as follows:
(d) NOTICES. Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Agreement shall be sufficiently given or made if in
writing and (i) delivered in person with receipt acknowledged, (ii) sent by
registered or certified mail, return receipt requested, postage prepaid, (iii)
sent by overnight courier with guaranteed next-day delivery, or (iv) sent by
telex or telecopier, in each case addressed as follows:
(i) If to Charterhouse to it at:
Charterhouse Equity Partners II, L.P.
525 Madison Avenue
New York, NY 10022-4299
Attention: Richard T. Henshaw
Fax: (212) 750-9704
(ii) If to any Dillon Read entity to it at:
Dillon Read & Co. Inc.
535 Madison Avenue
New York, New York 10022
Attention: Peter Leidel
Fax: (212) 308-5107
(iii) If to the Investors (other than ING) at the
address provided to the Company.
-4-
with a copy to:
Proskauer Rose Goetz & Mendelsohn
1585 Broadway
New York, New York 10036
Attention: Stephen W. Rubin, Esq.
(iv) If to Company, Cornell or Cox at:
Cornell Cox, Inc.
4801 Woodway
Suite 400W
Houston, Texas 77056
Fax: (713) 623-2853
with a copy to:
Baker & Botts, L.L.P.
910 Louisiana
Houston, Texas 77002
Attention: Walter Smith, Esq.
Fax: (713) 229-1522
(v) If to ING, at:
ING Capital
153 East 57th Street
New York, New York 10022-2101
Attention: Corporate Finance Group
Fax: (212) 593-3362
with a copy to:
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019
Attention: David K. Duffee, Esq.
Fax: (212) 262-1910
(vi) If to Warrant Holders other than ING:
At the address set forth in the Warrant Register
(as that tem is defined in the Warrant Agreement)
-5-
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, or three (3) Business Days after the same
shall have been deposited in the United States mail, one business day after sent
by overnight courier or on the day telexed or telecopied.
-6-
IN WITNESS WHEREOF, the undersigned have executed this amendment
as of the ____ day of March, 1995
CORNELL COX, INC.
By: /s/ DAVID M. CORNELL
Title:
/s/ DAVID M. CORNELL
David M. Cornell
/s/ NORMAN R. COX, JR.
Norman R. Cox, Jr.
CONCORD PARTNERS
By:/s/ PETER A. LEIDEL
Title:
CONCORD PARTNERS II, L.P.
By:/s/ PETER A. LEIDEL
Title:
CONCORD PARTNERS JAPAN LIMITED
By:/s/ PETER A. LEIDEL
Title:
DILLON READ & CO., INC., as Agent
By:/S / DAVID W. NIEMIEC
Title:
LEXINGTON PARTNERS III, L.P.
By:/S / DAVID W. NIEMIEC
Title:
LEXINGTON PARTNERS IV, L.P.
By:/S / DAVID W. NIEMIEC
Title:
BROWN UNIVERSITY THIRD CENTURY
FUND
By: /s/ ROBERT J. KOLYER, JR.
Title: Treasurer
CHARTERHOUSE EQUITY PARTNERS II,
L.P.
By: Chusa Equity Investors II, L.P.,
as general partner
By: Charterhouse Equity II, Inc.,
as general partner
By: /s/ RICHARD T. HENSHAW III
Title: Senior Vice President
CHEF NOMINEES LIMITED
By: Charterhouse Group International, Inc.,
Attorney-in-Fact
By: /s/ RICHARD T. HENSHAW III
Title: Senior Vice-President
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION
By: /s/ DAVID SCOPELLITI
Title:
-7-
AMENDMENT NO. 2 TO THE REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT NO. 2 TO THE REGISTRATION RIGHTS AGREEMENT
(this "Amendment No. 2") is dated to be effective November 1, 1995.
WHEREAS, Cornell Cox, Inc., now known as Cornell Corrections,
Inc., a Delaware corporation (the "Company"), David Cornell ("Cornell"), Norman
Cox ("Cox"), and certain Investors listed therein (the "Investors") entered into
that certain Registration Rights Agreement (the "Registration Rights Agreement")
dated as of March 31, 1994, pursuant to which the Company granted registration
rights as set forth therein; and
WHEREAS, the Company, Cornell, Cox, the Investors and
Internationale Nederlanden (U.S.) Capital Corporation ("ING") entered into that
certain Amendment No. 1 to the Registration Rights Agreement dated as of March
14, 1995;
WHEREAS, the Company has repurchased from Cox 555,000 shares of
Class A common stock, par value $.01 per share, of the Company (the "Repurchase
Transaction") pursuant to that certain Option Agreement dated as of July 17,
1995 by and among Cornell, Cox and Cheryl G. Cox; and
WHEREAS, the Company has negotiated to enter into Amendment No. 1
to the Credit Agreement dated as of March 14, 1995 by and among the Company,
subsidiaries of the Company, certain lenders listed therein (the "Lenders") and
ING, as agent to the Lenders, to obtain financing for the Repurchase
Transactions (the "Repurchase Loan"); and
WHEREAS, the Company has authorized the issuance of stock options
(the "Repurchase Stock Options") for the purchase of an aggregate of 555,000
shares of Class B common stock, par value $.01 per share, of the Company ("Class
B Common Stock") at a price of $2.00 per share until the expiration date of
October 31, 2002 pursuant to Stock Option Agreements and in conjunction with an
Investors Agreement, which, in part, requires certain persons acquiring
Repurchase Stock Options to exercise their options on or before December 31,
1996 unless the Company has issued stock pursuant to an initial public offering
or has paid off the Repurchase Loan; and
WHEREAS, in order to induce the persons acquiring Repurchase
Stock Options to subject themselves to the risk that they will be required to
exercise their Repurchase Stock Options on or before December 31, 1996,
regardless of the value of the shares of Class B Common Stock, the Company has
agreed to provide certain registration rights with respect to the Repurchase
Stock Option Shares (defined below); and
WHEREAS, Cox is no longer a stockholder of the capital stock of
the Company; and
1
WHEREAS, each of the parties to the Registration Rights
Agreement, as amended, who or which continue to own Registrable Securities (as
defined in the Registration Rights Agreement) agrees that the terms and
conditions of the Registration Rights Agreement, as amended, shall apply to the
shares of Class B Common Stock issued by the Company upon the exercise of the
Repurchase Stock Options and the shares of Class A common stock, par value $.01
per share, of the Company into which such shares of Class B Common Stock are
converted upon the occurrence of certain events, as described in the Certificate
of Incorporation of the Company; and
WHEREAS, certain persons who are not currently parties to the
Registration Rights Agreement, as amended, are acquiring concurrent herewith
options to purchase Repurchase Stock Option Shares (as defined below) and have
agreed to become parties to the Registration Rights Agreement, as amended;
NOW, THEREFORE, in connection with the foregoing, the parties
hereto wish to amend the Registration Rights Agreement, as amended, as follows:
1. The following definitions shall be added to the
Registration Rights Agreement, as amended:
"Repurchase Stock Options" shall mean the stock options for the
purchase of an aggregate of 555,000 shares of Class B Common
Stock at an exercise price of $2.00 per share, granted by the
Company in connection with the financing of the repurchase by the
Company of 555,000 shares of Class A Common Stock from Cox."
"Repurchase Stock Option Shares" shall mean shares of Class B
Common Stock issued or issuable by the Company upon the exercise
of Repurchase Stock Options by the holders thereof and the shares
of Class A Common Stock into which such shares of Class B Common
Stock are converted upon the occurrence of certain events, as
described in the Certificate of Incorporation of the Company."
2. The definition of Registrable Securities in the
Registration Rights Agreement, as amended, shall be amended to read:
"Registrable Securities" shall mean, collectively, (i) the shares
of Common Stock issued and sold to the Investors (excluding the
Warrant Holders) pursuant to the Purchase Agreement (including,
without limitation, any shares issued pursuant to Article VI
thereof), (ii) any shares of Common Stock hereafter acquired by
any Investor, Cornell or Cox either by means of exercising its
preemptive rights in accordance with Section 4 of the Amended and
Restated Stockholders Agreement or in any other manner, (iii) any
shares
2
of Common Stock received by any Investor, Cornell or Cox in
respect of its partnership interests in The Cornell Cox Group,
L.P., the company's predecessor, (iv) any shares of Common Stock
hereafter distributed to any Investor, Cornell or Cox by the
Company as a stock dividend or otherwise, (v) the Warrant Shares,
and (vi) the Repurchase Stock Option Shares; PROVIDED, HOWEVER,
that any such securities shall cease to be Registrable Securities
when (i) such securities shall have been registered under the
Securities Act, the registration statement with respect to the
sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of
pursuant to such effective registration statement, (ii) such
securities shall have been otherwise transferred, if new
certificates or other evidences of ownership for them not bearing
a legend restricting further transfer and not subject to any stop
transfer order or other restrictions on transfer shall have been
delivered by the Company and subsequent disposition of such
securities shall not require registration or qualification of
such securities under the Securities Act or any state securities
law then in force or (iii) such securities shall cease to be
outstanding.
3. The following shall be added to Section 8(d) of the
Registration Rights Agreement, as amended, following subparagraph (vi):
(vii) If to the holders of Repurchase Stock Option Shares (other
than to holders for whom addresses are otherwise provided
herein):
At the address set forth for each such holder in the
records of the Company.
4. Each of the holders of options to purchase Repurchase Stock
Option Shares executing this Amendment No. 2 agrees that it or he shall
be bound by the terms of the Registration Rights Agreement, as amended,
with respect to the Registrable Securities it or he holds.
5. This Amendment No. 2 shall be governed by, and construed
in accordance with, the laws of the State of New York without regard to
principles of conflict of laws.
6. This Amendment No. 2 may be executed in any number of
counterparts, and each counterpart hereof shall be deemed to be an
original instrument, but all such counterparts shall constitute but one
instrument.
3
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
CORNELL CORRECTIONS, INC.
By: /s/ DAVID M. CORNELL
Name: David M. Cornell
Title: Chairman
/s/ DAVID M. CORNELL
David M. Cornell
CHARTERHOUSE EQUITY PARTNERS II, L.P.
By: Chusa Equity Investors II, L.P.
By: Charterhouse Equity II, Inc.
By:/s/ RICHARD T. HENSHAW III
Name: Richard T. Henshaw III
Title: Senior Vice President
CONCORD PARTNERS
By:/s/ PETER A. LEIDEL
Name:
Title:
CONCORD PARTNERS II, L.P.
By:/s/ PETER A. LEIDEL
Name:
Title:
CONCORD PARTNERS JAPAN LIMITED
By:/s/ PETER A. LEIDEL
Name:
Title:
4
DILLON READ & CO., INC., as Agent
By:/s/ DAVID W. NIEMIEC
Name: David W. Niemiec
Title: Managing Director
LEXINGTON PARTNERS III, L.P.
By:/s/ DAVID W. NIEMIEC
Name: David W. Niemiec
Title: Managing Director
LEXINGTON PARTNERS IV, L.P.
By:/s/ DAVID W. NIEMIEC
Name: David W. Niemiec
Title: Managing Director
BROWN UNIVERSITY THIRD CENTURY FUND
By:/s/ ROBERT J. KOLYER, JR.
Name: Robert J. Kolyer, Jr.
Title: Treasurer
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION
By:/s/ DAVID P. SCOPELLITI
Name: David P. Scopelliti
Title: Vice President
/s/ STEVEN W. LOGAN
Steven W. Logan
5
/s/ WADE H. WHILDEN
Wade H. Whilden
6
AMENDMENT NO. 3 TO REGISTRATION RIGHTS AGREEMENT
This amendment (the "Amendment"), dated as of July 9, 1996, to
the Registration Rights Agreement dated as of March 31, 1994 as amended by
Amendment No. 1 to the Registration Rights Agreement dated as of March 14, 1995
and Amendment No. 2 to the Registration Rights Agreement dated as of November 1,
1995, is entered into by and among Cornell Corrections, Inc., a Delaware
corporation (f/k/a Cornell Cox, Inc.) (the "Company"), the Investors (as
originally defined in the Registration Rights Agreement), David Cornell, and
Internationale Nederlanden (U.S.) Capital Corporation ("ING").
Whereas, the Company, the Investors and David Cornell entered
into that certain Registration Rights Agreement dated as of March 31, 1994 and
executed Amendments No. 1 and No. 2 to such agreement on March 14, 1995 and
November 1, 1995, respectively (as amended, the "Registration Agreement").
Whereas, contemporaneously with the execution of this Amendment,
the Company and ING have entered into that certain Amended and Restated Credit
Agreement dated as of the date hereof by and among the Company, its
subsidiaries, as guarantors, ING and other lenders who are signatories to the
Credit Agreement (the "Credit Agreement") pursuant to which ING shall provide
credit to the Company in the aggregate amount of $35,000,000.
Whereas, in connection with the Credit Agreement, the Company and
ING have entered into that certain Warrant Issuance Agreement dated as of the
date hereof (the "1996 Warrant Agreement"), pursuant to which the Company shall
issue warrants to ING for 264,000 shares of Class B Common Stock of the Company
(the "Class B Common Stock"), as more particularly set forth in the 1996 Warrant
Agreement. As used herein, the term "1996 Warrant" shall have the meaning
ascribed to the term "Warrant" in the 1996 Warrant Agreement and the term "1996
Warrant Shares" shall have the meaning ascribed to the term "Warrant Shares" in
the 1996 Warrant Agreement.
Whereas, the Company has agreed to provide ING or any other
holders of the 1996 Warrants or the 1996 Warrant Shares (the "Warrant Holders")
registration rights for the 1996 Warrant Shares;
Now, therefore, in connection with the foregoing, the parties
hereto wish to amend the Registration Rights Agreement as follows;
1. The definition of "Registrable Securities" shall be amended to
read as follows.
"Registrable Securities" shall mean, collectively, (i) the shares
of Common Stock issued and sold to the Investors (excluding the
Warrant Holders and the 1996 Warrant Holders) pursuant to the
Purchase Agreement (including, without limitation, any shares
issued pursuant to Article VI thereof), (ii) any shares of Common
Stock hereafter acquired by any Investor Cornell either by means
of exercising its preemptive rights in accordance with Section 4
of the Amended and Restated Stockholders Agreement or in any
other manner, (iii) any shares of Common Stock received by any
Investor
1
or Cornell in respect of its partnership interests in The Cornell
Cox Group, L.P., the Company's predecessor, (iv) any shares of
Common Stock hereafter distributed to any Investor or Cornell by
the Company as a stock dividend or otherwise, (v) the Warrant
Shares, (vi) the Repurchase Stock Option Shares and (vii) the
1996 Warrant Shares; PROVIDED, HOWEVER, that any such securities
shall cease to be Registrable Securities when (i) such securities
shall have been registered under the Securities Act, the
registration statement with respect to the sale of such
securities shall have become effective under the Securities Act
and such securities shall have been disposed of pursuant to such
effective registration statement, (ii) such securities shall have
been otherwise transferred, if new certificates or other
evidences of ownership for them not bearing a legend restricting
further transfer and not subject to any stop transfer order or
other restrictions on transfer shall have been delivered by the
Company and subsequent disposition of such securities shall not
require registration or qualification of such securities under
the Securities Act or any state securities law then in force or
(iii) such securities shall cease to be outstanding.
1. Section 2 of the Registration Agreement shall be amended to
read as follows:
2. REQUIRED REGISTRATION. From and after the Closing Date
after receipt of a written request (the "Registration Request")
from (i) Investors collectively holding at least 50% of the
Registrable Securities then held by the Investors at the time of
such request if such request occurs prior to the third
anniversary of the Closing Date, or (ii) Holders of Registrable
Securities holding at least 15% of the outstanding Registrable
Securities of the Company if such request occurs thereafter, or
(iii) Holders collectively holding at least 50% of the Warrant
Shares and 1996 Warrant Shares issued or issuable upon exercise
of the Warrants and the 1996 Warrants, respectively, at the time
of such request if such request occurs upon the expiration of the
six month period immediately following the consummation of an
initial public offering of shares of Common Stock by the Company
in which fewer than 75% of the Warrant Shares and the 1996
Warrant Shares were sold, requesting that the Company effect the
registration of Registrable Securities under the Securities Act
and specifying the intended method or methods of disposition
thereof, the Company shall promptly notify all holders of
Registrable Securities in writing of the receipt of such request
and each such holder may elect (by written notice sent to the
Company within ten days from the date of such holder's receipt of
the aforementioned Company's notice) to have all or any part of
its Registrable Securities included in such registration thereof
pursuant to this Section 2. Thereupon the Company shall, as
expeditiously as is possible, use its best efforts to effect the
registration under the Securities Act of all shares of
Registrable Securities which the Company has been so requested to
register by such holders for sale, all to the extent required to
permit the disposition (in accordance with the intended method or
methods thereof, as aforesaid) of the
2
Registrable Securities so registered; PROVIDED, HOWEVER, that,
subject to the provisions of the immediately following sentence,
the Company shall not be required to effect more than two
registration statements of Registrable Securities pursuant to
clauses (i) or (ii) above or more than one registration pursuant
to clause (iii) above and, provided further that in the event
more than one registration is available to be requested pursuant
to clause (ii) above no more than one such registration may be
requested by Cornell. In order to count as an "effected"
registration statement, such registration statement shall not
have been withdrawn and all shares registered pursuant to it
(excluding any overallotment shares) shall have been sold. The
Company shall have the right to defer the filing of any
registration statement requested pursuant to this Section 2 for a
period not to exceed ninety (90) days if in the good faith
determination of the Board of Directors of the Company the filing
of such registration statement would be seriously detrimental to
the Company.
IN WITNESS WHEREOF, the undersigned have executed this amendment
as of the 9th day of July, 1996.
CORNELL CORRECTIONS, INC.
By: /S/ STEVEN W. LOGAN
Title:
/S/ DAVID M. CORNELL
David M. Cornell
CONCORD PARTNERS
By: /S/ PETER A. LEIDEL
Title:
CONCORD PARTNERS II, LP
By: /S/ PETER A. LEIDEL
Title:
CONCORD PARTNERS JAPAN LIMITED
By: /S/ PETER A. LEIDEL
Title:
DILLON READ & CO., INC, as Agent
3
By: /S/ PETER A. LEIDEL
Title:
LEXINGTON PARTNERS III, L.P.
By: /S/ PETER A. LEIDEL
Title:
LEXINGTON PARTNERS IV, L.P.
By: /S/ PETER A. LEIDEL
Title:
BROWN UNIVERSITY THIRD CENTURY FUND
By:_____________________________
Title:
CHARTERHOUSE EQUITY PARTNERS II,
L.P.
By: Chusa Equity Investors II,
L.P., as general partner
By: Charterhouse Equity II, Inc.,
as general partner
By: /S/ RICHARD T. HENSHAW
Title: Senior Vice President
CHEF NOMINEES LIMITED
By: Charterhouse Group
International, Inc.,
Attorney-in-Fact
By: /S/ RICHARD T. HENSHAW III
Title: Senior Vice-President
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION
By: /S/ DAVID BALESTRERY
Title: Senior Associate
4
RPR AGREEMENT
RPR AGREEMENT, dated as of March 31, 1994, between Cornell Cox,
Inc., a Delaware corporation (the "Company"), Rauscher Pierce Refsnes, Inc.
("RPR"), and the existing stockholders of the Company whose names are listed on
the signature pages hereto (the "Stockholders"). Unless otherwise indicated,
capitalized terms used herein shall have the meanings given to such terms in the
Warrant Agreement, dated as of March 31, 1994, between the Company and RPR (the
"Warrant Agreement").
WITNESSETH
WHEREAS, pursuant to a Warrant Agreement, the Company has issued
and sold to RPR warrants to purchase an aggregate of 43,062 shares of Common
Stock; and
WHEREAS, the parties hereto desire to evidence their agreement as
to certain rights and obligations of RPR as a Warrantholder and, in the event of
the exercise of all or any part of the Warrants, as a holder of Underlying
Common Stock; and
WHEREAS, the Company and the Stockholders desire to amend (i)
that certain Stockholders Agreement, dated as of March 31, 1994, by and among
the Company and the Stockholders (the "Stockholders Agreement") and (ii) that
certain Registration Rights Agreement, dated as of March 31, 1994, by and among
the Company and the Stockholders (the "Registration Rights Agreement");
NOW THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements contained herein and in the Warrant Agreement, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. RIGHTS TO ACQUIRE COMMON STOCK. For so long as any Warrants shall be issued
and outstanding, in the event of (i) the proposed issuance to any Stockholder by
the Company of shares of Common Stock or securities convertible into or
exchangeable for shares of Common Stock or (ii) the proposed grant to any
Stockholder by the Company of warrants, options or other rights to purchase
shares of Common Stock or securities convertible into or exchangeable for shares
of Common Stock, the Company shall provide RPR no less than 30 days prior
written notice of such proposed issuance or grant. If RPR exercises the Warrants
within 30 days of such notice, RPR shall have the right to participate in such
issuance or grant to the same extent as RPR would be entitled under the
Stockholders Agreement as a "Holder" (as defined in the Stockholders Agreement)
if RPR had exercised the Warrants and had been the holder of the Underlying
Common Stock immediately prior to the time such issuance or grant was proposed.
If RPR does not exercise the Warrants within such 30-day period, RPR shall
nonetheless have the right in
<PAGE>
connection with such issuance or grant, in the event the purchase price per
share of Common Stock or the price per share for which Common Stock is issuable
upon the exercise of such warrants, options or rights or upon conversion or
exchange of such convertible or exchangeable securities is less than the then
applicable Purchase Price and less than 85% of the fair market value of the
Common Stock, at the time of the proposed issuance or grant, to purchase a
proportion of such securities, warrants, options or rights equal to RPR's
percentage ownership (assuming the exercise of all Warrants then held by it) of
"Stock" (as defined in the Stockholders Agreement) of the Company on a record
date not more than 30 days prior to such issuance or grant. The price or prices
for such securities, warrants, options or rights shall not be less favorable to
RPR than the price or prices at which such securities, warrants, options or
rights are proposed to be offered for sale or granted to others. In the event of
a dispute between RPR and the Company in connection with the foregoing as to the
fair market value of the Common Stock, RPR shall have the right to require an
appraisal of the value of the Common Stock, at the expense of RPR. In such
event, at RPR's expense, RPR and the Company shall each appoint an independent
appraiser, and the two appraisers shall select a third appraiser. The three
appraisers shall conduct an appraisal of the Common Stock as promptly as
practicable. The agreement of two or more of the three appraisers as to the fair
market value of the Common Stock shall be binding on the Company and the RPR for
purposes of this Section 1. The foregoing provisions of this Section 1 shall not
be applicable in connection with any such issuance or grant to any Stockholder
pursuant to the provisions of any employee benefit or similar plan of the
Company or any of its affiliates or otherwise in connection with such
Stockholder's employment by the Company or any of its affiliates.
2. STOCKHOLDERS AGREEMENT; REGISTRATION RIGHTS AGREEMENT. The
Stockholders Agreement and the Registration Rights Agreement are hereby amended
to provide:
(a) RPR is hereby added as a party to the Stockholders Agreement,
and the Stockholders Agreement is hereby amended to include RPR
within the definition of "Holder" therewith; PROVIDED, HOWEVER,
that RPR shall be entitled to the rights and shall be subject to
the obligations of a "Holder" under the Stockholders Agreement
only with respect to shares of Underlying Common Stock that shall
have been issued upon exercise of the Warrants, and shall not be
entitled to the rights or be subject to the obligations of a
"Holder" thereunder to the extent such Warrants shall not have
been exercised.
(b) RPR is hereby added as a party to the Registration Rights
Agreement, and the Registration Rights Agreement is hereby
amended to include the Underlying Common Stock within the
definition of "Registrable Securities"; PROVIDED, HOWEVER, that
(i) RPR shall not be deemed to be an "Investor" within the
meaning of that Agreement; and (ii) RPR shall not have any rights
pursuant to Section 2 of that Agreement (that is, RPR shall not
have any demand registration rights) and the Underlying Common
Stock shall not be deemed to be "Registrable Securities" for
purposes of such Section 2.
<PAGE>
3. WAIVERS. The Stockholders hereby irrevocably waive any rights to
acquire the Warrants of Underlying Common Stock that they may have pursuant to
Section 6 of the Stockholders Agreement.
4. SUCCESSOR, ASSIGNS, TRANSFEREES. The provisions of this Agreement
shall be binding upon and accrue to the benefit of the parties hereto and their
respective heirs, successors and permitted assigns. In particular, permitted
assignees of the Warrants pursuant to Section 3 of the Warrant Agreement shall
be entitled to the benefits hereof.
IN WITNESS WHEREOF, the parties hereto have executed this RPR
Agreement as of the date first above written.
RAUSCHER PIERCE REFSNES, INC.
By: /S/ G. CLYDE BUCK
Title: MANAGING DIRECTOR
CORNELL COX, INC.
By: /S/ DAVID M. CORNELL
Title: CHAIRMAN
/S/ DAVID M. CORNELL
DAVID M. CORNELL
/S/ NORMAN R. COX
NORMAN R. COX
CONCORD PARTNERS
By: /S/ PETER A. LEIDEL
Title:
<PAGE>
CONFORD PARTNERS II, L.P.
By: /S/ PETER A. LEIDEL
Title:
CONCORD PARTNERS JAPAN LIMITED
By: PETER A. LEIDEL
Title:
DILLON READ & CO., INC., as Agent
By: /S/ PETER A. LEIDEL
Title:
LEXINGTON PARTNERS III, L.P.
By: /S/ PETER A. LEIDEL
Title:
LEXINGTON PARTNERS IV, L.P.
By: / PETER A. LEIDEL
Title:
BROWN UNIVERSITY THIRD CENTURY FUND
By: /S/ ROBERT J. KOLYER, JR.
Title: TREASURER
<PAGE>
CHARTERHOUSE EQUITY PARTNERS II, L.P.
By: Chusa Equity Investors II, L.P.
By: Charterhouse Equity II, Inc.
By: /S/ RICHARD T. HENSHAW
Title: SENIOR VICE PRESIDENT
<PAGE>
EXHIBIT 10.1
Cornell Corrections, Inc.
1996 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
Page
I. Purposes of the Plan.............................................. 1
II. Definitions....................................................... 1
III. Effective Date.................................................... 4
IV. Administration.................................................... 4
(A) Duties of the Committee................................... 4
(B) Advisors.................................................. 5
(C) Indemnification........................................... 5
(D) Meetings of the Committee................................. 6
(E) Determinations............................................ 6
V. Shares; Adjustment Upon Certain Events............................ 6
(A) Shares to be Delivered; Fractional Shares................. 6
(B) Number of Shares.......................................... 6
(C) Adjustments; Recapitalization, etc........................ 6
(D) Extraordinary Transactions.................................. 7
VI. Awards and Terms of Options....................................... 8
(A) Grant..................................................... 8
(B) Exercise Price............................................ 8
(C) Number of Shares.......................................... 9
(D) Exercisability............................................ 9
(E) Exercise of Options....................................... 9
(F) Incentive Stock Option Limitations........................ 10
(G) Other Terms and Conditions................................ 10
VII. Effect of Termination of Employment............................... 11
(A) Death, Disability, Retirement, etc........................ 11
(B) Cause..................................................... 11
(C) Cancellation of Options................................... 12
VIII. Nontransferability of Options..................................... 12
IX. Rights as a Stockholder........................................... 12
X. Termination, Amendment and Modification........................... 12
XI. Use of Proceeds................................................... 13
i
PAGE
XII. General Provisions................................................ 13
(A) Right to Terminate Employment or Consulting Arrangements.. 13
(B) Purchase for Investment................................... 13
(C) Trusts, etc............................................... 14
(D) Notices................................................... 14
(E) Severability of Provisions................................ 15
(F) Payment to Minors, Etc.................................... 15
(G) Headings and Captions..................................... 15
(H) Controlling Law........................................... 15
(I) Other Benefits............................................ 15
(J) Costs..................................................... 15
(K) Section 162(m) Deduction Limitation....................... 15
(L) Section 16(b) of the Exchange Act......................... 15
XIII. Issuance of Stock Certificates;
Legends; Payment of Expenses...................................... 16
(A) Stock Certificates........................................ 16
(B) Legends................................................... 16
(C) Payment of Expenses....................................... 16
XIV. Listing of Shares and Related Matters............................. 16
XV. Withholding Taxes................................................. 16
ii
I. PURPOSES OF THE PLAN
The purposes of this 1996 Stock Option Plan (the "Plan") are to
enable Cornell Corrections, Inc. (the "Company") and Designated Subsidiaries (as
defined herein) to attract, retain and motivate certain key employees and
certain consultants who are important to the success and growth of the business
of the Company and Designated Subsidiaries and to create a long-term mutuality
of interest between such persons and the stockholders of the Company by granting
the options to purchase Common Stock (as defined herein).
II. DEFINITIONS
In addition to the terms defined elsewhere herein, for purposes
of this Plan, the following terms will have the following meanings when used
herein with initial capital letters:
(A) "Board" means the Board of Directors of the Company.
(B) "Cause" means, with respect to a Participant's Termination of
Employment, (i) in the case where there is no employment or consulting agreement
between the Company and the Participant, or where there is an employment or
consulting agreement, but such agreement does not define cause (or words of like
import), commission of a felony, a crime involving moral turpitude,
embezzlement, misappropriation of property of the Company or a Subsidiary, any
other act involving dishonesty or fraud with respect to the Company or a
Subsidiary, a material breach of a directive which is not cured within a
specified time after written notice of such breach, or repeated failure after
written notice to follow the directives of an appropriate officer or the Board,
or (ii) in the case where there is an employment or consulting agreement between
the Company or a Subsidiary and the Participant, termination that is or would be
deemed to be for cause (or words of like import) as defined under such
employment or consulting agreement.
(C) "Code" means the Internal Revenue Code of 1986, as amended.
(D) "Committee" means a committee of the Board appointed from
time to time by the Board consisting of two or more non-employee directors, each
of whom shall be an "outside director" as defined in Section 162(m) of the Code
to the extent then required and a "disinterested person" as defined in Rule
16b-3 promulgated under Section 16(b) of the Exchange Act, except that if and to
the extent that no Committee exists which has the authority to administer the
Plan, the functions of the Committee shall be exercised by the Board.
1
(E) "Common Stock" means either the Class A Common Stock of the
Company, par value $.001 per share, or the Class B Common Stock of the Company,
par value $.001 per share, or any common stock into which the Common Stock may
be converted and any common stock resulting from any reclassification of the
Common Stock.
(F) "Company" means Cornell Corrections, Inc., a Delaware
corporation.
(G) "Designated Subsidiary" means any Subsidiary which has been
designated from time to time by the Board. An entity shall be deemed a
Designated Subsidiary only for such periods as the requisite ownership
relationship is maintained.
(H) "Disability" means a permanent and total disability,
rendering a Participant unable to perform the duties performed by the
Participant for the Company or Designated Subsidiaries by reason of physical or
mental disability for a period of more than an aggregate of one hundred eighty
days in any twelve month period. A Disability shall only be deemed to occur at
the time of the determination by the Committee of the Disability.
(I) "Eligible Consultants" means the consultants of the Company
and Designated Subsidiaries who are eligible to participate in the Plan
(including but not limited to employees of entities providing consulting
services), as determined by the Committee in its sole discretion.
(J) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and all rules and regulations promulgated thereunder.
(K) "Fair Market Value" means, for purposes of this Plan, unless
otherwise required by any applicable provision of the Code or any regulations
issued thereunder, as of any date, the last sales prices reported for the Common
Stock on the applicable date, (i) as reported by the principal national
securities exchange in the United States on which it is then traded, or (ii) if
not traded on any such national securities exchange, as quoted on an automated
quotation system sponsored by the National Association of Securities Dealers, or
if the sale of the Common Stock shall not have been reported or quoted on such
date, on the first day prior thereto on which the Common Stock was reported or
quoted. If the Common Stock is not readily tradable on a national securities
exchange or any system sponsored by the National Association of Securities
Dealers, its Fair Market Value shall be set by the Committee based upon its
assessment of the cash price that would be paid between a fully informed buyer
and seller under no compulsion to buy or sell (without giving effect to any
discount for a minority interest or any restrictions on transferability or any
lack of liquidity of the stock).
(L) "Incentive Stock Option" means any Option awarded under this
Plan intended to be and designated as an "Incentive Stock Option" within the
meaning of Section 422 of the Code.
2
(M) "Key Employee" means any person who is an officer or other
valuable employee of the Company or a Designated Subsidiary, as determined by
the Committee in its sole discretion. A Key Employee may, but need not, be an
officer of the Company or a Designated Subsidiary.
(N) "Non-Qualified Stock Option" means any Option awarded under
this Plan that is not an Incentive Stock Option.
(O) "Option" means the right to purchase one Share at a
prescribed purchase price on the terms specified in the Plan.
(P) "Participant" means an Eligible Consultant or Key Employee
who is granted Options under the Plan which Options have not expired; provided,
however, that any Eligible Consultant of the Company or a Designated Subsidiary
shall be a Participant for purposes of the Plan solely with respect to grants of
Non-Qualified Stock Options and shall be ineligible for Incentive Stock Options.
(Q) "Person" means any individual or entity, and the heirs,
executors, administrators, legal representatives, successors and assigns of such
Person as the context may require.
(R) "Retirement" means a Termination of Employment without cause
from the Company and/or a Subsidiary by a Participant who is at least age 65 or,
with the consent of the Committee, such earlier date before age 65 but after age
55.
(S) "Securities Act" means the Securities Act of 1933, as
amended, and all rules and regulations promulgated thereunder.
(T) "Share" means a share of Common Stock.
(U) "Subsidiary" means any corporation that is defined as a
subsidiary corporation in Section 424(f) of the Code.
(V) "Ten Percent Shareholder" means a person owning Common Stock
of the Company possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company as defined in Section 422 of
the Code.
(W) "Termination of Employment" with respect to an individual
means that individual is no longer actively employed by the Company or a
Subsidiary on a full-time basis, irrespective of whether or not such employee is
receiving salary continuance pay, is continuing to participate in other employee
benefit programs or is otherwise receiving severance type payments. In the event
an entity shall cease to be a Subsidiary, there shall be deemed a Termination of
Employment of any individual who is not otherwise an employee of the Company or
another Subsidiary at the time the entity ceases to be a Subsidiary. A
Termination of Employment shall not include a leave of absence approved for
purposes of the
3
Plan by the Committee. For purposes of this plan, a full-time employee is a
person who is scheduled to work at least thirty (30) hours per week. With
respect to an Eligible Consultant, a Termination of Employment shall occur upon
the termination of the consulting contract or the termination of the performance
of consulting services, as determined by the Committee in its sole discretion.
(X) "Withholding Election" means the election set forth in
Article XV.
III. EFFECTIVE DATE
The Plan shall become effective as of May 15, 1996 (the
"Effective Date"). Grants of Options by the Committee under the Plan may be made
as of or after the Effective Date of the Plan, including retroactively, provided
that, if the Plan is not approved by the majority of the Common Stock (at the
time of approval), all Options which have been granted by the Committee shall be
null and void. No Options may be exercised prior to the approval of the Plan by
the majority of the Common Stock (at the time of approval).
IV. ADMINISTRATION
(A) DUTIES OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee. The Committee shall have full authority to
interpret the Plan and to decide any questions and settle all controversies and
disputes that may arise in connection with the Plan; to establish, amend and
rescind rules for carrying out the Plan; to administer the Plan, subject to its
provisions; to select Participants in, and grant Options under, the Plan; to
determine the terms, vesting requirements, exercise price and form of exercise
payment for each Option granted under the Plan; to determine the consideration
to be received by the Company in exchange for the grant of the Options; to
determine whether and to what extent Incentive Stock Options and Non-Qualified
Stock Options, or any combination thereof, are to be granted hereunder to one or
more Key Employees and whether and to what extent Non-Qualified Stock Options
are to be granted hereunder to one or more Eligible Consultants; to prescribe
the form or forms of instruments evidencing Options and any other instruments
required under the Plan (which need not be uniform) and to change such forms
from time to time; to determine whether, to what extent and under what
circumstances to permit reloads, such that to the extent that Options are
settled with Common Stock, that Non- Qualified Stock Options may be granted for
the same number of shares of the same or different types, based on such terms as
the Committee may determine, in its sole discretion; and to make all other
determinations and to take all such steps in connection with the Plan and the
Options as the Committee, in its sole discretion, deems necessary or desirable.
The Committee shall not be bound to any standards of uniformity or similarity of
action, interpretation or conduct in the discharge of its duties hereunder,
regardless of the apparent similarity of the matters coming before it. Any
determination, action or conclusion of the Committee shall be final, conclusive
and binding on all parties. Anything in the Plan to the contrary
notwithstanding, no term of this Plan relating to Incentive Stock Options shall
be
4
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be so exercised, so as to disqualify the Plan under Section 422
of the Code, or, without the consent of the Participants affected, to disqualify
any Incentive Stock Option under such Section 422.
(B) ADVISORS. The Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the administration of the
Plan, and may rely upon any advice or opinion received from any such counsel or
consultant and any computation received from any such consultant or agent.
Expenses incurred by the Committee in the engagement of such counsel, consultant
or agent shall be paid by the Company.
(C) INDEMNIFICATION. To the maximum extent permitted by
applicable law, no officer of the Company or member or former member of the
Committee or of the Board shall be liable for any action or determination made
in good faith with respect to the Plan or any Option granted under it. To the
maximum extent permitted by applicable law or the Certificate of Incorporation
or By-Laws of the Company and to the extent not covered by insurance, each
officer and member or former member of the Committee or of the Board shall be
indemnified and held harmless by the Company against any cost or expense
(including reasonable fees of counsel reasonably acceptable to the Company) or
liability (including any sum paid in settlement of a claim with the approval of
the Company), and advanced amounts necessary to pay the foregoing at the
earliest time and to the fullest extent permitted, arising out of any act or
omission to act in connection with the Plan, except to the extent arising out of
such officer's, member's or former member's own fraud or bad faith. Such
indemnification shall be in addition to any rights of indemnification the
officers, members or former members may have as directors under applicable law
or under the Certificate of Incorporation or By-Laws of the Company or
Designated Subsidiary. Notwithstanding anything else herein, this
indemnification will not apply to the actions or determinations made by an
individual with regard to Options granted to him or her under this Plan.
(D) MEETINGS OF THE COMMITTEE. The Committee shall adopt such
rules and regulations as it shall deem appropriate concerning the holding of its
meetings and the transaction of its business. Any member of the Committee may be
removed from the Committee at any time either with or without cause by
resolution adopted by the Board, and any vacancy on the Committee may at any
time be filled by resolution adopted by the Board. All determinations by the
Committee shall be made by the affirmative vote of a majority of its members.
Any such determination may be made at a meeting duly called and held at which a
majority of the members of the Committee are in attendance in person or through
telephonic communication. Any determination set forth in writing and signed by
all the members of the Committee shall be as fully effective as if it had been
made by a majority vote of the members at a meeting duly called and held.
(E) DETERMINATIONS. Each determination, interpretation or other
action made or taken pursuant to the provisions of this Plan by the Committee
shall be final, conclusive and binding for all purposes and upon all persons,
including, without limitation, the Participants, the Company and Subsidiaries,
directors, officers and other employees of the
5
Company and Subsidiaries, and the respective heirs, executors, administrators,
personal representatives and other successors in interest of each of the
foregoing.
V. SHARES; ADJUSTMENT UPON CERTAIN EVENTS
(A) SHARES TO BE DELIVERED; FRACTIONAL SHARES. Shares to be
issued under the Plan shall be made available, at the sole discretion of the
Board, either from authorized but unissued Shares or from issued Shares
reacquired by the Company and held in treasury. No fractional Shares will be
issued or transferred upon the exercise of any Option. In lieu thereof, the
Company shall pay a cash adjustment equal to the same fraction of the Fair
Market Value of one Share on the date of exercise.
(B) NUMBER OF SHARES. Subject to adjustment as provided in this
Article V, the maximum aggregate number of Shares that may be issued under the
Plan shall be Eight Hundred Thousand (800,000). If Options are for any reason
canceled, or expire or terminate unexercised, the Shares covered by such Options
shall again be available for the grant of Options, subject to the foregoing
limit.
(C) ADJUSTMENTS; RECAPITALIZATION, ETC. The existence of the Plan
and the Options granted hereunder shall not affect in any way the right or power
of the Board or the stockholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change in the Company's
capital structure or its business, any merger or consolidation of the Company,
any issue of bonds, debentures, preferred or prior preference stocks ahead of or
affecting Common Stock, the dissolution or liquidation of the Company or
Designated Subsidiaries, any sale or transfer of all or part of its assets or
business or any other corporate act or proceeding. The Committee may make or
provide for such adjustments in the maximum number of Shares specified in
Article V(B), in the number of Shares covered by outstanding Options granted
hereunder, and/or in the Purchase Price (as hereinafter defined) applicable to
such Options or such other adjustments in the number and kind of securities
received upon the exercise of Options, as the Committee in its sole discretion
may determine is equitably required to prevent dilution or enlargement of the
rights of Participants or to otherwise recognize the effect that otherwise would
result from any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company,
merger, consolidation, spin-off, reorganization, partial or complete
liquidation, issuance of rights or warrants to purchase securities or any other
corporate transaction or event having an effect similar to any of the foregoing.
Except as herein expressly provided, the issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
for cash, property, labor or services, upon direct sale, upon the exercise of
rights or warrants to subscribe therefor or upon conversion of shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number and
class of shares and/or other securities or property subject to Options
theretofore granted or the Purchase Price.
6
(D) EXTRAORDINARY TRANSACTIONS. (i) In the event the Company
shall, pursuant to action by its Board of Directors, at any time propose to
merge with or into, consolidate with, or sell or otherwise transfer all or
substantially all of its assets to another entity or in the event of the
acquisition of all or substantially all of the Company's outstanding Common
Stock by a single person or entity and/or group of entities acting in concert
(each, an "Extraordinary Transaction"), the Company shall cause written notice
of the proposed Extraordinary Transaction to be given to the Participant not
less than 30 days prior to the anticipated effective date of the proposed
Extraordinary Transaction (the "Extraordinary Transaction Effective Date").
(ii) On a date which the Company shall specify in such notice
(the "Early Vesting Date"), which date shall not be less than 20 days prior to
the Extraordinary Transaction Effective Date, the Options shall become fully
vested, except as otherwise expressly provided in any Option Agreement with
respect to the Options granted thereunder.
(iii) If the Extraordinary Transaction is consummated, the
Options, to the extent not previously exercised prior to the Extraordinary
Transaction Effective Date, shall terminate on the Extraordinary Transaction
Effective Date. If the Extraordinary Transaction is abandoned or otherwise not
consummated then, to the extent that the portion of the Options not exercised
prior to such abandonment or termination shall have vested solely by operation
of Article V(D)(ii) [and the relevant Option agreements,] such vesting shall be
annulled and be of no further force or effect, and the vesting provisions set
forth in the relevant Option agreements shall be reinstituted, as of the date of
such abandonment or termination.
VI. AWARDS AND TERMS OF OPTIONS
(A) GRANT. The Committee may grant Non-Qualified Stock Options or
Incentive Stock Options, or any combination thereof to Key Employees, and
Non-Qualified Stock Options to Eligible Consultants, provided that the maximum
number of Shares with respect to which Options may be granted to any Key
Employee or any Eligible Consultant during any calendar year may not exceed Two
Hundred Fifty Thousand (250,000), subject to adjustment as provided in Article
V(C). To the extent that the maximum number of Shares with respect to which
Options may be granted are not granted in a particular calendar year to a
Participant (beginning with the year in which the Participant receives his or
her first grant of Options hereunder), such ungranted Options for any year shall
increase the maximum number of Shares with respect to which Options may be
granted to such Participant in subsequent calendar years during the term of the
Plan until used. Notwithstanding the foregoing, in order to comply with Section
162(m) of the Code, the Committee shall take into account that (1) if an Option
is cancelled, the cancelled Option continues to be counted against the maximum
number of shares for which Options may be granted to the Key Employee or
Consultant under the Plan and (2) for purposes of Section 162(m) of the Code, if
after the grant of an Option, the Committee or the Board reduces the exercise
price or Purchase Price (as defined below), the transaction is treated a
cancellation of the Option and a grant of a new Option, and in such case, both
the Option that is deemed to be cancelled and the Option that is deemed to be
granted reduce the maximum number of shares for which
7
Options may be granted to the Key Employee or Consultant under the Plan. To the
extent that any Option does not qualify as an Incentive Stock Option (whether
because of its provisions or the time or manner of its exercise or otherwise),
such Option or the portion thereof which does not qualify, shall constitute a
separate Non-Qualified Stock Option. Each Option shall be evidenced by an Option
agreement (the "Option Agreement") in such form as the Committee shall approve
from time to time.
(B) EXERCISE PRICE. The purchase price per Share (the "Purchase
Price") deliverable upon the exercise of a Non-Qualified Stock Option shall be
determined by the Committee and set forth in a Participant's Option Agreement,
provided that the Purchase Price shall not be less than the par value of a
Share. Notwithstanding the foregoing, to the extent the Committee grants an
Incentive Stock Option or grants an option which is intended to be "performance
based" for purposes of Section 162(m) of the Code, the Purchase Price
deliverable upon the exercise of any such option shall be determined by the
Committee and set forth in a Participant's Option Agreement but shall be not
less than 100% of the Fair Market Value of a Share at the time of grant;
provided, however, if an Incentive Stock Option is granted to a Ten Percent
Shareholder, the Purchase Price shall be no less than 110% of the Fair Market
Value of a Share.
(C) NUMBER OF SHARES. The Option Agreement shall specify the
number of Options granted to the Participant, as determined by the Committee in
its sole discretion.
(D) EXERCISABILITY. At the time of grant, the Committee shall
specify when and on what terms (including any vesting requirements) the Options
granted shall be exercisable. In the case of Options not immediately exercisable
in full, the Committee may at any time accelerate the time at which all or any
part of the Options may be exercised and may waive any other conditions to
exercise. No Option shall be exercisable after the expiration of ten years from
the date of grant; provided, however, the term of an Incentive Stock Option
granted to a Ten Percent Shareholder may not exceed five years. Each Option
shall be subject to earlier termination as provided in Article VII below.
(E) EXERCISE OF OPTIONS.
(i) A Participant may elect to exercise one or more
Options then exercisable by giving written notice to the Company of such
election and of the number of Options such Participant has elected to
exercise, accompanied by payment in full of the aggregate Purchase Price
for the number of Shares for which the Options are being exercised.
(ii) Shares purchased pursuant to the exercise of Options
shall be paid for at the time of exercise as follows:
(a) in cash or by check, bank draft or money order
payable to the order of Company;
8
(b) in the form shares of Common Stock owned by the
Participant (and for which the Participant has good title free
and clear of any liens and encumbrances);
(c) by agreeing to surrender then exercisable
Options equivalent in value;
(d) if the Shares are traded on a national
securities exchange, through the delivery of irrevocable
instructions to a broker to deliver promptly to the Company an
amount equal to the aggregate Purchase Price plus all required
tax withholding by payment through a cash or margin arrangement
with a broker;
(e) in shares otherwise issuable upon exercise of
the Option; or
(f) on such other terms and conditions as may be
acceptable to the Committee (which may include payment in full or
in part by the transfer of Shares which have been owned by the
Participant for at least 6 months or the surrender of Options
owned by the Participant) and in accordance with applicable law.
No shares shall be issued until payment, as provided herein, has been
made or provided for.
(iii) Upon receipt of payment, the Company shall deliver
to the Participant as soon as practicable a certificate or certificates
for the Shares then purchased.
(F) INCENTIVE STOCK OPTION LIMITATIONS. To the extent that the
aggregate Fair Market Value (determined as of the time of grant) of the Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by the Participant during any calendar year under the Plan and/or any
other stock option plan of the Company or any subsidiary or parent corporation
(within the meaning of Section 424 of the Code) exceeds $100,000, such Options
shall be treated as Options which are not Incentive Stock Options.
To the extent permitted under Section 422 of the Code, or the
applicable regulations thereunder or any applicable Internal Revenue Service
pronouncement, if (i) a Participant's employment with the Company or Designated
Subsidiary is terminated by reason of death, Disability, Retirement or
termination without Cause, and (ii) the portion of any Incentive Stock Option
that would be exercisable during the post-termination period specified under
Article VII but for the $100,000 limitation currently contained in Section
422(d) of the Code, is greater than the portion of such Stock Option that is
immediately exercisable as an incentive stock option' during such
post-termination period under Section 422, such excess shall be treated as a
Non-Qualified Stock Option. If the exercise of an Incentive Stock
9
Option is accelerated for any reason, any portion of such Option that is not
exercisable as an Incentive Stock Option by reason of the $100,000 limitation
contained in Section 422(d) of the Code shall be treated as a Non-Qualified
Stock Option.
Should any of the foregoing provisions not be necessary in order
for the Stock Options to qualify as Incentive Stock Options, or should any
additional provisions be required, the Committee may amend the Plan accordingly,
without the necessity of obtaining the approval of the shareholders of the
Company, except as otherwise required by law.
(G) OTHER TERMS AND CONDITIONS. Options may contain such other
provisions, which shall not be inconsistent with any of the foregoing terms of
the Plan, as the Committee shall deem appropriate including, without limitation,
provisions permitting the use of shares of Common Stock to exercise and settle a
Stock Option ("Stock Swaps") or permitting "reloads" such that in the case of
Stock Swaps, the same number of Non-Qualified Stock Options are granted as the
number of shares of Common Stock swapped ("Reloads"). With respect to Stock
Swaps, shares of Common Stock shall be valued at Fair Market Value on the date
of exercise [and shall have the same remaining time period as the shares of
Common Stock that were swapped.] With respect to Reloads, the exercise price of
the new Non-Qualified Stock Option shall be the Fair Market Value on the date
granted and the term of the Non-Qualified Stock Option shall be the same as the
remaining term of the Options that are exercised.
VII. EFFECT OF TERMINATION OF EMPLOYMENT
(A) DEATH, DISABILITY, RETIREMENT, ETC. Except as otherwise
provided in the Participant's Option Agreement, upon Termination of Employment,
all outstanding Options then exercisable and not exercised by the Participant
prior to such Termination of Employment (and any Options not previously
exercisable but made exercisable by the Committee at or after the Termination of
Employment) shall remain exercisable by the Participant to the extent not
exercised for the following time periods, or, if earlier, the prior expiration
of the Option in accordance with the terms of the Plan and grant:
(i) In the event of the Participant's death, Retirement or
Disability, such Options shall remain exercisable by the Participant (or
by the Participant's estate or by the person given authority to exercise
such Options by the Participant's will or by operation of law) for a
period of one year from the date of the Participant's death, Retirement
or Disability, provided that the Committee, in its sole discretion, may
at any time extend such time period.
(ii) In the event the Participant's employment is
terminated by the Company or a Designated Subsidiary without Cause, such
Options shall remain exercisable for 90 days from the date of the
Participant's Termination of Employment, provided that the Committee, in
its sole discretion, may at any time extend such time period.
10
Unless the Committee otherwise determines, there shall be no effect on the
exercisability of Options held by a Participant if (i) the Participant's
employment or consultancy is transferred from the Company to a Designated
Subsidiary, from a Designated Subsidiary to the Company or from one Designated
Subsidiary to another or (ii) the Participant is a Key Employee who becomes an
Eligible Consultant or an Eligible Consultant who becomes a Key Employee.
(B) CAUSE. Upon the Termination of Employment of a Participant
for Cause, or if the Company or a Designated Subsidiary obtains or discovers
information after Termination of Employment that such Participant had engaged in
conduct that would have justified a Termination of Employment for Cause during
employment, all outstanding Options of such Participant shall, unless the
Committee in its sole discretion determines otherwise, terminate and be null and
void.
(C) CANCELLATION OF OPTIONS. Except as otherwise provided in
Article V(D), no Options that were not exercisable during the period of
employment shall thereafter become exercisable upon a Termination of Employment
for any reason or no reason whatsoever, and such options shall terminate and
become null and void upon a Termination of Employment, unless the Committee
determines in its sole discretion that such Options shall be exercisable.
VIII. NONTRANSFERABILITY OF OPTIONS
No Option shall be transferable by the Participant otherwise than
by will or under applicable laws of descent and distribution, and during the
lifetime of the Participant may be exercised only by the Participant or his or
her guardian or legal representative. In addition, except as provided in the
immediately preceding sentence, no Option shall be assigned, negotiated, pledged
or hypothecated in any way (whether by operation of law or otherwise), and no
Option shall be subject to execution, attachment or similar process. Upon any
attempt to transfer, assign, negotiate, pledge or hypothecate any Option, or in
the event of any levy upon any Option by reason of any execution, attachment or
similar process contrary to the provisions hereof, such Option shall immediately
terminate and become null and void.
IX. RIGHTS AS A STOCKHOLDER
A Participant (or a permitted transferee of an Option) shall have
no rights as a stockholder with respect to any Shares covered by such
Participant's Option until such Participant (or permitted transferee) shall have
become the holder of record of such Shares, and no adjustments shall be made for
dividends in cash or other property or distributions or other rights in respect
to any such Shares, except as otherwise specifically provided in this Plan.
11
X. TERMINATION, AMENDMENT AND MODIFICATION
The Plan shall terminate at the close of business on the tenth
anniversary of the Effective Date (the "Termination Date"), unless terminated
sooner as hereinafter provided, and no Option shall be granted under the Plan on
or after that date. The termination of the Plan shall not terminate any
outstanding Options that by their terms continue beyond the Termination Date. At
any time prior to the Termination Date, the Committee may amend or terminate the
Plan or suspend the Plan in whole or in part.
The Committee may at any time, and from time to time, amend, in
whole or in part, any or all of the provisions of the Plan (including any
amendment deemed necessary to ensure that the Company may comply with any
regulatory requirements referred to in Article XII), or suspend or terminate it
entirely, retroactively or otherwise; PROVIDED, HOWEVER, that, unless otherwise
required by law or specifically provided herein, the rights of a Participant
with respect to Options granted prior to such amendment, suspension or
termination, may not, be materially impaired without the consent of such
Participant and, provided further, without the approval of the stockholders of
the Company entitled to vote, no amendment may be made (except by operation of
Article V(C) with respect to clauses (i), (ii) and (iii) below), which would (i)
increase the aggregate number of shares of Common Stock that may be issued under
this Plan; (ii) decrease the minimum Purchase Price of any Option; (iii)
increase the individual limitation set forth in Article VI(A) of the Plan; (iv)
extend the maximum option period; or (v) effect any other change that would
require stockholder approval under Section 162(m) of the Code.
The Committee may amend the terms of any Option granted,
prospectively or retroactively, but, subject to Article VI above or as otherwise
provided herein, no such amendment or other action by the Committee shall
materially impair the rights of any Participant without the Participant's
consent. No modification of an Option shall adversely affect the status of an
Incentive Stock Option as an incentive stock option under Section 422 of the
Code. Notwithstanding the foregoing, however, no such amendment may, without the
approval of the stockholders of the Company, effect any change that would
require stockholder approval under applicable law.
XI. USE OF PROCEEDS
The proceeds of the sale of Shares subject to Options under the
Plan are to be added to the general funds of Company and used for its general
corporate purposes as the Board shall determine.
12
XII. GENERAL PROVISIONS
(A) RIGHT TO TERMINATE EMPLOYMENT OR CONSULTING ARRANGEMENTS.
Neither the adoption of the Plan nor the grant of Options shall impose any
obligation on the Company or Designated Subsidiaries to continue the employment
of any Participant or the consulting arrangement with any Eligible Consultant,
nor shall it impose any obligation on the part of any Participant to remain in
the employ of the Company or Designated Subsidiaries or to remain as a
consultant of the Company or its Designated Subsidiaries.
(B) PURCHASE FOR INVESTMENT. If the Board or the Committee
determines that the law so requires, the holder of an Option granted hereunder
shall, upon any exercise or conversion thereof, execute and deliver to the
Company a written statement, in form satisfactory to the Company, representing
and warranting that such Participant is purchasing or accepting the Shares then
acquired for such Participant's own account and not with a view to the resale or
distribution thereof, that any subsequent offer for sale or sale of any such
Shares shall be made either pursuant to (i) a Registration Statement on an
appropriate form under the Securities Act, which Registration Statement shall
have become effective and shall be current with respect to the Shares being
offered and sold, or (ii) a specific exemption from the registration
requirements of the Securities Act, and that in claiming such exemption the
holder will, prior to any offer for sale or sale of such Shares, obtain a
favorable written opinion, satisfactory in form and substance to the Company,
from counsel acceptable to the Company as to the availability of such exception.
(C) TRUSTS, ETC. Nothing contained in the Plan and no action
taken pursuant to the Plan (including, without limitation, the grant of any
Option thereunder) shall create or be construed to create a trust of any kind,
or a fiduciary relationship, between the Company and any Participant or the
executor, administrator or other personal representative or designated
beneficiary of such Participant, or any other persons. Any reserves that may be
established by the Company in connection with the Plan shall continue to be part
of the general funds of the Company, and no individual or entity other than the
Company shall have any interest in such funds until paid to a Participant. If
and to the extent that any Participant or such Participant's executor,
administrator or other personal representative, as the case may be, acquires a
right to receive any payment from the Company pursuant to the Plan, such right
shall be no greater than the right of an unsecured general creditor of the
Company.
(D) NOTICES. Any notice to the Company required by or in respect
of this Plan will be addressed to the Company, Cornell Corrections, Inc., 4801
Woodway, Suite 400W, Houston, TX 77056, Attention: Chief Financial Officer, or
such other place of business as shall become the Company's principal executive
offices from time to time. Each Participant shall be responsible for furnishing
the Company with the current and proper address for the mailing to such
Participant of notices and the delivery to such Participant of agreements,
Shares and payments. Any such notice to the Participant will, if the Company has
received notice that the Participant is then deceased, be given to the
Participant's personal representative if such representative has previously
informed the Company of his status and address (and has provided such reasonable
substantiating information as the Company may
13
request) by written notice under this Section. Any notice required by or in
respect of this Plan will be deemed to have been duly given when delivered in
person or when dispatched by telegram or one business day after having been
dispatched by a nationally recognized overnight courier service or three
business days after having been mailed by United States registered or certified
mail, return receipt requested, postage prepaid. The Company assumes no
responsibility or obligation to deliver any item mailed to such address that is
returned as undeliverable to the addressee and any further mailings will be
suspended until the Participant furnishes the proper address.
(E) SEVERABILITY OF PROVISIONS. If any provisions of the Plan
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions of the Plan, and the Plan shall be
construed and enforced as if such provisions had not been included.
(F) PAYMENT TO MINORS, ETC. Any benefit payable to or for the
benefit of a minor, an incompetent person or other person incapable of receipt
thereof shall be deemed paid when paid to such person's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Committee, the Company and their
employees, agents and representatives with respect thereto.
(G) HEADINGS AND CAPTIONS. The headings and captions herein are
provided for reference and convenience only. They shall not be considered part
of the Plan and shall not be employed in the construction of the Plan.
(H) CONTROLLING LAW. The Plan shall be construed and enforced
according to the laws of the State of Delaware.
(I) OTHER BENEFITS. No payment under this Plan shall be
considered compensation for purposes of computing benefits under any retirement
plan of the Company or a Designated Subsidiary nor affect any benefits under any
other benefit plan now or subsequently in effect under which the availability of
benefits is related to the level of compensation.
(J) COSTS. The Company shall bear all expenses included in
administering this Plan, including expenses of issuing Common Stock pursuant to
any Options hereunder.
(K) SECTION 162(M) DEDUCTION LIMITATION. The Committee at any
time may in its sole discretion limit the number of Options that can be
exercised in any taxable year of the Company, to the extent necessary to prevent
the application of Section 162(m) of the Code (or any similar or successor
provision), provided that the Committee may not postpone the earliest date on
which Options can be exercised beyond the last day of the stated term of such
Options.
(L) SECTION 16(B) OF THE EXCHANGE ACT. All elections and
transactions under the Plan by persons subject to Section 16 of the Exchange Act
involving shares of Common
14
Stock are intended to comply with all exemptive conditions under Rule 16b-3. The
Committee may establish and adopt written administrative guidelines, designed to
facilitate compliance with Section 16(b) of the Exchange Act, as it may deem
necessary or proper for the administration and operation of the Plan and the
transaction of business thereunder.
XIII. ISSUANCE OF STOCK CERTIFICATES;
LEGENDS; PAYMENT OF EXPENSES
(A) STOCK CERTIFICATES. Upon any exercise of an Option and
payment of the exercise price as provided in such Option, a certificate or
certificates for the Shares as to which such Option has been exercised shall be
issued by the Company in the name of the person or persons exercising such
Option and shall be delivered to or upon the order of such person or persons.
(B) LEGENDS. Certificates for Shares issued upon exercise of an
Option shall bear such legend or legends as the Committee, in its sole
discretion, determines to be necessary or appropriate to prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act or to implement the provisions of any agreements between Company and the
Participant with respect to such Shares.
(C) PAYMENT OF EXPENSES. The Company shall pay all issue or
transfer taxes with respect to the issuance or transfer of Shares, as well as
all fees and expenses necessarily incurred by the Company in connection with
such issuance or transfer and with the administration of the Plan.
XIV. LISTING OF SHARES AND RELATED MATTERS
If at any time the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in connection
with, the grant of Options or the award or sale of Shares under the Plan, no
Option grant shall be effective and no Shares will be delivered, as the case may
be, unless and until such listing, registration, qualification, consent or
approval shall have been effected or obtained, or otherwise provided for, free
of any conditions not acceptable to the Board.
XV. WITHHOLDING TAXES
The Company shall have the right to require prior to the issuance
or delivery of any shares of Common Stock payment by the Participant of any
Federal, state or local taxes required by law to be withheld.
The Committee may permit any such withholding obligation to be
satisfied by reducing the number of shares of Common Stock otherwise
deliverable. A person required to file reports under Section 16(a) of the
Exchange Act with respect to securities of the
15
Company may elect to have a sufficient number of shares of Common Stock withheld
to fulfill such tax obligations (hereinafter a "Withholding Election") only if
the election complies with such conditions as are necessary to prevent the
withholding of such shares from being subject to Section 16(b) of the Exchange
Act. To the extent necessary under then current law, such conditions shall
include the following: (x) the Withholding Election shall be subject to the
approval of the Committee and (y) the Withholding Election is made (i) during
the period beginning on the third business day following the date of release for
publication of the quarterly or annual summary statements of sales and earnings
of the Company and ending on the twelfth business day following such date or is
made in advance but takes effect during such period, (ii) six (6) months before
the stock award becomes taxable, or (iii) during any other period in which a
Withholding Election may be made under the provisions of Rule 16b-3 promulgated
pursuant to the Exchange Act. Any fraction of a share of Common Stock required
to satisfy such tax obligations shall be disregarded and the amount due shall be
paid instead in cash by the Participant.
16
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement dated as of March 31, 1994 (this
"Agreement") is entered into by and between each of Cornell Cox Group, L.P., a
Delaware limited partnership (the "Partnership"), Eclectic Communications, Inc.,
a California corporation (the "Company"), and Marvin H. Wiebe, Jr. (the
"Executive").
1. INTRODUCTION.
The Executive is a senior executive whose services are critical to
the success of the Company and its business. The Company believes that retaining
the Executive's services as an employee of the Company and the benefit of his
business experience are of material importance. The Company desires to encourage
the Executive to continue in the employ of the Company for the benefit of the
Company. Therefore, the Company and the Executive intend by this Agreement to
specify the terms and conditions of the Executive's employment relationship with
the Company.
2. EMPLOYMENT.
The Company hereby employs the Executive and the Executive hereby
accepts employment with the Company upon the terms and subject to the conditions
set forth herein. This Agreement amends and supersedes any prior employment
agreement between the Executive and the Company.
3. DUTIES AND RESPONSIBILITIES.
(a) The Executive shall serve the Company as Vice Presidence (or in
such executive office as the Company may determine) and shall perform,
faithfully and diligently, the services and functions relating to such
office or otherwise reasonably incident to such office as may be
designated from time to time by the Company; provided, however, that all
such services and functions shall be reasonable and within the Executive's
area of expertise.
(b) The Executive shall, during the term of this Agreement (or any
extension thereof), devote substantially all of his working time and
business efforts to the interests of the Company. The Executive shall not,
during the term of this Agreement (or any extension thereof), engage in
any other business activity (regardless of whether such business activity
is pursued for gain, profit or other pecuniary advantage) if such business
activity would impair or conflict with the Executive's ability to carry
out his duties hereunder; provided, however, that the Executive shall be
permitted to continue to own any equity interest (or option to acquire an
equity interest) that he owns on the date of this Agreement in any entity
that leases real property to the Company.
-1-
4. COMPENSATION AND OTHER EMPLOYEE BENEFITS.
As compensation for his services under the terms of this Agreement:
(a) The Executive shall be paid an annual salary of $90,500,
payable in accordance with the then current payroll policies of the
Company (but no less frequently than monthly) (such annual salary is
herein referred to as the "Base Salary"); the Base Salary shall be
reviewed annually, but no later than each December 31, by the
Company.
(b) Subject to the right of the Company to amend or terminate
any employee and/or group or senior executive benefit plan, the
Executive shall be entitled to receive the following employee
benefits:
(1) the Executive shall have the right to participate in
such medical and dental plans as are adopted by the Company,
as well as any or future employee and/or group benefit plans
of the Company that are available to its exempt salaried
employees generally (including, without limitation,
disability, accident, medical, life insurance and
hospitalization plans which are normal and customary);
(2) the Executive shall have the right to participate in
all future senior executive benefit plans of the Company
(including not less than one month paid vacation per year
during the Employment Term (as hereafter defined)), all in
accordance with the Company's regular practices with respect
to its senior executive officers;
(3) the Executive shall be entitled to the use of an
automobile leased by the Company on his behalf as reasonably
determined by the Company; and
(4) the Executive shall be entitled to reimbursement
from the Company for reasonable out-of-pocket expenses
incurred by him in the course of the performance of his duties
hereunder, and the Executive shall provide to the Company such
documentation of such expenses and use such method of payment
as requested by the Company.
(c) In addition to Base Salary, for each fiscal year of the
Company beginning with the commencement of the Employment Term, the
Company agrees to pay Executive an annual profit sharing bonus (the
"Profit Sharing Bonus") equal to the respective percentage, as
indicated on the graduated rate schedule as shown on "Exhibit A", of
the Company's pre-tax income. For this purpose, the term pre-tax
income shall be such amount as reflected in the Company's annual
audited financial statements prepared in accordance with generally
accepted accounting
-2-
principles, shall include any book gain from the disposition of a
Company asset and shall be adjusted for the following:
(1) The pre-tax income shall be increased by the amount
of annual amortization expense of intangibles which relate
directly to the 1994 acquisition of the Company by Cornell Cox
Management, Inc.
(2) The pre-tax income shall be increased by the amount
of the Fixed Bonuses paid for such year and the amount of
annual interest expense directly attributable to the McDonald
Note as defined in the Stock Purchase Agreement, dated March
11, 1994, by and between The Cornell Cox Group, L.P., Cornell
Cox Management, Inc., Arthur McDonald, Barbara McDonald, John
Forren, Marvin Wiebe and Richard Frank (the "Stock Purchase
Agreement").
(3) The pre-tax income shall not be decreased by the
amount of compensation paid to David M. Cornell and Norman R.
Cox, Jr.
(4) The pre-tax income shall not be affected by the
payments to the Key Employees (as defined in the Stock
Purchase Agreement) in cancellation of the Company's stock
options.
(5) The pre-tax income shall not be decreased by the
Profit Sharing Bonus.
Except as provided below, the Profit Sharing Bonus shall be paid no
later than four months after the close of the Company's fiscal year;
provided, however, that if payment of the Profit Sharing Bonus or
any part of it would cause the Company to be in violation of any of
its present or future credit agreements with its institutional
lender, the Company may, in its discretion, delay paying all or a
portion of the Profit Sharing Bonus until such time as payment can
be made without violation of said agreements. In the event that the
Company delays payment, the Company shall pay the Executive interest
on the unpaid amount of the Profit Sharing Bonus for the period
beginning four months after the end of the Company's fiscal year and
ending when payment is made. Interest shall be paid annually,
beginning sixteen months after the end of the Company's fiscal year,
and shall accrue at the short-term annual applicable federal rate
published by the Internal Revenue Service. In any event, the Profit
Sharing Bonus shall be paid no later than forty months after the end
of the Company's fiscal year for which the Profit Sharing Bonus is
payable. In the event other employees are entitled to similar
bonuses and a portion of all of the bonuses can be paid without
violating the financing agreements, the Company shall pay each
employee a portion of their Profit Sharing Bonus and defer the rest,
so that each employee will receive a portion of the Profit Sharing
Bonus money available, such portion determined by proration based
upon the employees' relative salaries.
The Executive shall have the option to acquire shares of
common stock ("Shares") of Cornell Cox Group, Inc. (the "Holding
Company") by requesting that the Company pay up to 50% of his Profit
Sharing Bonus (less all applicable federal,
-3-
state and local withholding taxes) to the Holding Company in
exchange for Shares which shall be registered in the name of and
delivered to the Executive. The price per Share shall be 90% of the
fair market value of a Share on the date of the notice referred to
in the following sentence as determined in good faith by the
Management Committee or other governing body of the Holding Company
or its successor or other price per Share mutually agreed to by the
Executive, the Company and the Holding Company. At least 15 days
prior to the payment of the Profit Sharing Bonus, the Company shall
notify the Executive of the expected amount of such Profit Sharing
Bonus and the fair market value of a Share. Within 10 days following
the Executive's receipt of the notice referred to in the preceding
sentence, the Executive shall give written notice of (i) the amount
of the Profit Sharing Bonus to be paid to him in cash (less all
applicable federal, state and local withholding taxes) and (ii) the
amount of the Profit Sharing Bonus (but not in excess of 50% of such
Profit Sharing Bonus) to be paid to the Holding Company (less all
applicable federal, state and local withholding taxes) in exchange
for Shares. The Executive shall be deemed to have elected to receive
the Profit Sharing Bonus (less all applicable federal, state and
local withholding taxes) entirely in cash unless the Company shall
have received the written notice described in the preceding sentence
within 10 days following the receipt by him of the notice from the
Company regarding the expected amount of the Profit Sharing Bonus.
The Executive's Profit Sharing Bonus shall begin to accrue on
the date of this Agreement. If the Executive's employment hereunder
is terminated during the Company's fiscal year, or if the Executive
is otherwise employed by the Company hereunder for a period less
than the Company's entire fiscal year, the Executive shall be
entitled to a pro rata Profit Sharing Bonus for the portion of the
fiscal year actually employed hereunder. Such Profit Sharing Bonus
shall be payable after the end of the fiscal year in accordance with
the above terms, and shall be based on the Company's operating
profits for the entire fiscal year. For example, if the Executive
was employed hereunder for six months out of the year, he would be
entitled to one-half of the bonus he would have received had he been
employed hereunder for the entire year.
(d) In addition to the Base Salary and Profit Sharing Bonus,
the Company agrees, subject to the last sentence of this section
4(d), to pay the Executive an annual fixed bonus of $50,000 (the
"Annual Fixed Bonus") in four annual installments for a total of
$200,000 and a monthly fixed bonus of 0.5% of the unpaid amount of
the Annual Fixed Bonus (the "Monthly Fixed Bonus" and collectively
with the Annual Fixed Bonus, the "Fixed Bonuses"). The Monthly Fixed
Bonus shall be paid on the last business day of each month and the
Annual Fixed Bonus shall be paid on the first, second, third and
fourth anniversary dates of the date of this Agreement (or the next
business day if such anniversary date is not a business day). The
Fixed Bonuses shall begin to accrue on the date of this Agreement.
If the Executive's employment terminates pursuant to Section 6(a) of
this Agreement, the Executive shall not be entitled to any
additional payments, pro rata or otherwise, of the Fixed Bonuses. If
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the Executive's employment terminates pursuant to Section 6(b), (c)
or (e) of this Agreement, the Executive or his personal
representative shall continue to be entitled to the Fixed Bonus
payments as they come due in accordance with this Agreement. If the
Executive's employment terminates pursuant to Section 6(d) of this
Agreement, the Company shall pay (i) in lieu of the Annual Fixed
Bonus, an amount equal to the excess of (a) $200,000 multiplied by a
fraction (that shall not exceed one), the numerator of which is the
number of complete months that have elapsed from the date of this
Agreement through the date of termination and the denominator of
which is 36, over (b) the aggregate amount of the Annual Fixed
Bonuses previously paid to the Executive and (ii) in lieu of the
Monthly Fixed Bonus, an amount equal to 0.5% of the prorated Annual
Fixed Bonus amount determined in accordance with clause (i) of this
sentence. The Company shall pay the prorated Annual Fixed Bonus
amount on the next anniversary date of the date of this Agreement
and shall pay the revised Monthly Fixed Bonus on the dates the
Monthly Fixed Bonus was otherwise due. The Company shall have the
right to set off against the Fixed Bonuses any set off amounts
pursuant to Section 9.4 of the Stock Purchase Agreement.
If the Holding Company shall propose to sell Shares in an
initial public offering, the Executive shall have the option to
acquire Shares by requesting that the Company use his unpaid Annual
Fixed Bonus (less all applicable federal, state and local
withholding taxes) to purchase Shares from the Holding Company which
shall be registered in the name of the Executive but delivered to
the Company. The price per Share shall be 90% of the initial issue
price per Share pursuant to the initial public offering. At least 15
days prior to the proposed closing date of the initial public
offering, the Company shall notify the Executive of the expected
amount of unpaid Annual Fixed Bonus and the expected issue price of
a Share. Within 10 days following the Executive's receipt of the
notice referred to in the preceding sentence, the Executive shall
give written notice of the amount of the unpaid Annual Fixed Bonus
to be paid to the Holding Company (less all applicable federal,
state and local withholding taxes) in exchange for Shares. The
Executive shall be deemed to have elected to receive the Annual
Fixed Bonus (less all applicable federal, state and local
withholding taxes) entirely in cash pursuant to the terms of the
preceding paragraph unless the Company shall have received the
written notice described in the preceding sentence within 10 days
following the receipt by him of the notice from the Company
regarding the expected initial public offering. The Monthly Fixed
Bonus shall cease to accrue on the amount of the unpaid Annual Fixed
Bonus used to purchase Shares. The Shares shall be delivered to the
Executive in accordance with the same schedule for delivering the
unpaid Annual Fixed Bonus pursuant to the preceding paragraph and
shall be forfeited in accordance with the provisions regarding the
termination of the Executive's employment pursuant to the preceding
paragraph, except that the cost of the Shares shall be used in lieu
of the unpaid Annual Fixed Bonus. The Company shall also have the
right to set off against the Shares any set off amounts pursuant to
Section 9.4 of the Stock Purchase Agreement.
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5. TERM.
(a) Subject to the provisions of Section 6, the term of this
Agreement shall commence on the date of this Agreement and shall end three
years from the date of this Agreement. The term of this Agreement is
referred to herein as the "Employment Term".
(b) The term of this Agreement may be extended for additional
periods by mutual consent of the Executive and the Company.
6. TERMINATION OF EMPLOYMENT.
(a) FOR DUE CAUSE. Nothing herein shall prevent the Company from
terminating, without prior notice, the Executive for "Due Cause" (as
hereinafter defined), in which event the Executive shall be entitled to
receive his Base Salary on a pro rata basis to the date of termination. In
the event of such termination for Due Cause, all other rights and benefits
the Executive may have under the employee and/or group or senior executive
benefit plans and programs of the Company, generally, shall be determined
in accordance with the terms and conditions of such plans and programs.
The term "Due Cause" shall mean (i) the Executive has committed a willful
serious act, such as fraud, embezzlement or theft against the Company,
intending to enrich himself at the expense of the Company or been
convicted of a felony, (ii) the Executive has engaged in conduct which has
caused demonstrable and serious injury, monetary or otherwise, to the
Company as evidenced by an order or decree of a court, administrative
agency or binding arbitration panel of competent jurisdiction, (iii) the
Executive, in carrying out his duties hereunder, has been guilty of
willful gross neglect or willful gross misconduct, (iv) the Executive has
refused to carry out his duties in gross dereliction of duty and, after
receiving notice to such effect from the Company, the Executive fails to
cure the existing problem within 10 days, or (v) the Executive has
materially breached this Agreement and has not remedied such breach within
10 days after receipt of written notice from the Company that a breach of
this Agreement has occurred.
(b) DUE TO DEATH. In the event of the death of the Executive, this
Agreement shall terminate on the date of death and the estate of the
Executive shall be entitled to the Executive's Base Salary through the end
of the month in which he died. In the event of such termination due to
death, all other rights and benefits the Executive (or his estate) may
have under the employee and/or group or senior executive benefit plans and
programs of the Company, generally, shall be determined in accordance with
the terms and conditions of such plans and programs.
(c) DISABILITY. In the event the Executive suffers a "Disability"
(as hereinafter defined), this Agreement shall terminate on the date on
which the Disability occurs and the Executive shall be entitled to his
Base Salary through the end of the month in which his employment is
terminated due to the Disability. In the event of such termination due to
Disability, all other rights and benefits the Executive may have under the
employee and/or group or senior executive benefit plans and programs of
the Company, generally, shall be
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determined in accordance with the terms and conditions of such plans and
programs. For purposes of this Agreement, "Disability" shall mean the
inability or incapacity of the Employee to perform the duties and
responsibilities related to the job or position with the Company described
in Section 3(a). Such inability or incapacity shall be documented to the
reasonable satisfaction of the Company by appropriate correspondence from
registered physicians reasonably satisfactory to the Company.
(d) VOLUNTARY TERMINATION. The Executive may voluntarily terminate
his employment under this Agreement at any time by providing at least 30
days' prior written notice to the Company. In such event, the Executive
shall be entitled to receive his Base Salary until the date his employment
terminates and all other benefits the Executive may have under the
employee and/or group or senior executive benefit plans and programs of
the Company, generally, shall be determined in accordance with the terms
and conditions of such plans and programs.
(e) CONSTRUCTIVE TERMINATION.
(1) If the Company (i) terminates the employment of the
Executive other than for Due Cause or because of a Disability,
(ii) demotes the Executive to a lesser position than as
provided in Section 3(a), (iii) decreases the Executive's Base
Salary below the level provided for by the terms of Section
4(a) or reduces the employee benefits and perquisites below
the level provided for by the terms of Section 4 (other than
as a result of any amendment or termination of any employee
and/or group or senior executive benefit plan, which amendment
or termination is applicable to all employees or executives of
the Company, as the case may be, eligible to participate in
such plan prior to its termination), (iv) changes the
Executive's authorities and responsibilities such that he no
longer has direct access to the Board of Directors of the
Company or direct access to the chief executive officer of the
Company, (v) causes the Executive to relocate because the
Company moves the Executive's principal place of employment to
an office that is more than 50 miles from the current Company
office in Ventura, California or (vi) changes the medical
insurance, life insurance, disability insurance or 401(k)
savings plans from their status as of September 28, 1993, in a
way that will have a material adverse reduction in the
benefits to the Executive, then such action by the Company,
unless consented to in writing by the Executive, shall be
deemed to be a constructive termination by the Company of the
Executive's employment ("Constructive Termination").
(2) Notwithstanding Section 6(e)(1), a Constructive
Termination shall not occur unless, within 15 days of learning
of the action described herein as the basis for a Constructive
Termination, the Executive shall advise the Company in writing
that he intends to terminate his employment pursuant to this
Section 6(e)(2), and the Company shall not, within 10 days of
receipt
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of such written notice, correct such action and provide the
Executive with a written notice of such correction.
(3) In the event of a Constructive Termination, the
Executive shall be entitled to receive, from the date of
Constructive Termination, his Base Salary (as provided in
Section 4(a)) for a period of six months, payable in
accordance with the then current payroll policies of the
Company and then beginning with the seventh month following
the date of the Constructive Termination, the Executive shall
be entitled to receive one-half of such Base Salary for a
period of six months, payable in accordance with the then
current payroll policies of the Company, but in no event will
the Company be required to make any payment for any period
after the third anniversary of the date of this Agreement. In
the event of such Constructive Termination, all other rights
and benefits the Executive may have under the employee and/or
group or senior executive benefit plans and programs of the
Company, generally, shall be determined in accordance with the
terms and conditions of such plans and programs.
(4) In the event of the death of the Executive following
Constructive Termination, the amounts set forth in Section
6(e)(3) shall continue to be owing and shall be paid to the
estate of Executive.
(5) Notwithstanding any provision of this Agreement to
the contrary, the aggregate present value of all "payments in
the nature of compensation" (within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the
"Code")), provided to the Executive in the event of a
Constructive Termination shall be one dollar less than the
amount that is fully deductible by the Company under Section
280G of the Code and, to the extent necessary, payments and
benefits under this Agreement shall be reduced in order that
this limitation not be exceeded. It is the intention of this
Section 6(e)(5) to avoid excise taxes on the Executive under
Section 4999 of the Code or the disallowance of a deduction to
the Company pursuant to Section 280G of the Code.
7. PRESERVATION OF BUSINESS; FIDUCIARY RESPONSIBILITY. The Executive shall
use his best efforts to preserve the business and organization of the Company,
to keep available to the Company the services of present employees and to
preserve the business relations of the Company with suppliers, distributors,
customers and others. The Executive shall not commit any act, or in any way
assist others to commit any act, that would injure the Company. So long as the
Executive is employed by the Company, the Executive shall observe and fulfill
proper standards of fiduciary responsibility attendant upon his service and
office.
8. NOTICES. All notices, requests, demands and other communications given
under or by reason of this Agreement shall be in writing and shall be deemed
given when delivered in person or
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when mailed, by certified mail (return receipt requested), postage prepaid,
addressed as follows (or to such other address as a party may specify by notice
pursuant to this provision):
(a) To the Company:
c/o The Cornell Cox Group, L.P.
4801 Woodway, Suite 400W
Houston, Texas 77056
Attn: David M. Cornell
Fax No: (713) 623-2853
With a copy to:
Baker & Botts, L.L.P.
3000 One Shell Plaza
Houston, Texas 77002
Attn: Wade H. Whilden
Fax No: (713) 229-1522
(b) To the Executive:
Marvin H. Wiebe, Jr.
67 Santa Cruz Way
Camarillo, California 93010
With a copy to:
Schramm & Raddue
15 West Carrillo Street
Santa Barbara, California 93102
Attention: Daniel A. Reicker
Fax No.: (805) 564-4181
Confirmation No.: (805) 963-2044
9. CONTROLLING LAW AND PERFORMABILITY. THE EXECUTION, VALIDITY,
INTERPRETATION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
10. EXPENSES. The unsuccessful party shall pay or reimburse the successful
party for all costs and expenses (including court costs and attorneys' fees)
incurred by the successful party as a result of any claim, action or proceeding
arising out of, or challenging the validity, advisability or enforceability of,
this Agreement or any provision hereof if the successful party prevails in such
claim, action or proceeding before a court of competent jurisdiction.
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11. ADDITIONAL INSTRUMENTS. The Executive and the Company shall execute
and deliver any and all additional instruments and agreements that may be
necessary or proper to carry out the purposes of this Agreement.
12. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement contains the entire
agreement of the Executive and the Company relating to the matters contained
herein and supersedes all prior agreements and understandings, oral or written,
between the Executive and the Company with respect to the subject matter hereof.
This Agreement may be changed only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension or
discharge is sought. By execution of this Agreement, the parties agree that any
other employment agreement between the Company and the Executive or between
International Self-Help Services, Inc. ("International") and the Executive is
terminated as of the date of this Agreement, except that the Company and
International, as the case may be, shall continue to be liable for any payments
under those agreements attributable to the period of employment prior to the
termination.
13. SEPARABILITY. If any provision of this Agreement is rendered or
declared illegal or unenforceable by reason of any existing or subsequently
enacted legislation or by decree of a court, the Executive and the Company shall
promptly meet and negotiate substitute provisions for those rendered or declared
illegal or unenforceable to preserve the original intent of this Agreement to
the extent legally possible, but all other provisions of this Agreement shall
remain in full force and effect.
14. ASSIGNMENTS. The Company may assign (whether by operation of law or
otherwise) this Agreement only with the written consent of the Executive, which
consent shall not be unreasonably withheld, and in the event of an assignment of
this Agreement, all covenants, conditions and provisions hereunder shall inure
to the benefit of and be enforceable against the Company's successors and
assigns. The rights and obligations of the Executive under this Agreement are
personal to him, and no such rights, benefits or obligations shall be subject to
voluntary or involuntary alienation, assignment or transfer.
15. EFFECT OF AGREEMENT. Subject to the provisions of Section 14 with
respect to assignments, this Agreement shall be binding upon the Executive and
his heirs, executors, administrators, legal representatives and assigns and upon
the Company and its respective successors and assigns.
16. EXECUTION. This Agreement may be executed in multiple counterparts
each of which shall be deemed an original and all of which shall constitute one
and the same instrument.
17. WAIVER OF BREACH. The waiver by either party to this Agreement of a
breach of any provision of the Agreement by the other party shall not operate or
be construed as a waiver by such party of any subsequent breach by such other
party.
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IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement effective as of the date first above written.
ECLECTIC COMMUNICATIONS, INC.
By: /s/ ARTHUR MCDONALD
Name:
Title:
"EXECUTIVE"
/s/ MARVIN WIEBE
Marvin H. Wiebe, Jr.
CORNELL COX GROUP, L.P.
By /s/ NORMAN R. COX, JR.
Name:
Title:
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EXHIBIT 10.3
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is entered into and effective as
of the ____ day of ___________, 1996 ("Agreement"), by and between CORNELL
CORRECTIONS, INC., a Delaware corporation ("Company"), and
_______________________ ("Indemnitee"):
WHEREAS, highly competent persons have become more reluctant to
serve corporations as directors or in other capacities unless they are provided
with adequate protection through insurance or adequate indemnification against
inordinate risks of claims and actions against them arising out of their service
to and activities on behalf of the corporation;
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense,
liability insurance to protect persons serving the Company and its subsidiaries
from certain liabilities. Although the furnishing of such insurance has been a
customary and widespread practice among United States-based corporations and
other business enterprises, the Company believes that, given current market
conditions and trends, such insurance may be available to it in the future only
at higher premiums and with more exclusions. At the same time, directors,
officers and other persons in service to corporations or business enterprises
are being increasingly subjected to expensive and time-consuming litigation
relating to, among other things, matters that traditionally would have been
brought only against the corporation or business enterprise itself;
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining such
persons;
WHEREAS, the Board has determined that the increased difficulty
in attracting and retaining such persons is detrimental to the best interests of
the Company's stockholders and that the Company should act to assure such
persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to
take on additional service for or on behalf of the Company on the condition that
he be so indemnified;
NOW, THEREFORE, in consideration of the premises and the
covenants contained herein, the Company and Indemnitee do hereby covenant and
agree as follows:
SECTION 1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve as
a director or officer or both of the Company and, as mutually agreed by
Indemnitee and the Company, as a director, officer, employee, agent or fiduciary
of other corporations, partnerships, joint ventures,
-1-
trusts or other enterprises (including, without limitation, employee benefit
plans). Indemnitee may at any time and for any reason resign from any such
position (subject to any other contractual obligation or any obligation imposed
by operation of law), in which event the Company shall have no obligation under
this Agreement to continue Indemnitee in that position. This Agreement shall not
be deemed an employment contract between the Company (or any of its
subsidiaries) and Indemnitee. Indemnitee specifically acknowledges that
Indemnitee's employment with the Company (or any of its subsidiaries), if any,
is at will, and the Indemnitee may be discharged at any time for any reason,
with or without cause, except as may be otherwise provided in any written
employment contract between Indemnitee and the Company (or any of its
subsidiaries), other applicable formal severance policies duly adopted by the
Board or, with respect to service as a director of the Company, by the Company's
Restated Certificate of Incorporation, Bylaws and the General Corporation Law of
the State of Delaware ("DGCL"). The foregoing notwithstanding, this Agreement
shall continue in force after Indemnitee has ceased to serve as an officer or
director of the Company and no longer serves at the request of the Company as a
director, officer, employee or agent of the Company or any subsidiary of the
Company.
SECTION 2. INDEMNIFICATION--GENERAL. The Company shall indemnify,
and advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in
this Agreement and (b) (subject to the provisions of this Agreement) to the
fullest extent permitted by applicable law in effect on the date hereof and as
amended from time to time. The rights of Indemnitee provided under the preceding
sentence shall include, but shall not be limited to, the rights set forth in the
other Sections of this Agreement.
SECTION 3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT
OF THE COMPANY. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 3 if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to or a participant in any
threatened, pending, or completed Proceeding (as hereinafter defined), other
than a Proceeding by or in the right of the Company. Pursuant to this Section 3,
the Company shall indemnify Indemnitee against, and shall hold Indemnitee
harmless from and in respect of, all Expenses, judgments, penalties, fines
(including excise taxes) and amounts paid in settlement (including all interest,
assessments and other charges paid or payable in connection with or in respect
of such Expenses, judgments, fines, penalties or amounts paid in settlement)
actually and reasonably incurred by him or on his behalf in connection with such
Proceeding or any claim, issue or matter therein, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company and, with respect to any criminal Proceeding, had no reasonable
cause to believe his conduct was unlawful.
SECTION 4. PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY.
Indemnitee shall be entitled to the rights of indemnification provided in this
Section 4 if, by reason of his Corporate Status, he is, or is threatened to be
made, a party to or a participant in any threatened, pending or completed
Proceeding brought by or in the right of the Company to procure a judgment in
its favor. Pursuant to this Section 4, the Company shall indemnify Indemnitee
against, and shall hold Indemnitee harmless from and in respect of, all Expenses
actually and reasonably incurred by him or on his behalf in connection with such
Proceeding if he acted in
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good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company; PROVIDED, HOWEVER, that, if applicable law so
provides, no indemnification against such Expenses shall be made in respect of
any claim, issue or matter in such Proceeding as to which Indemnitee shall have
been adjudged to be liable to the Company unless and to the extent that the
Court of Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine that such
indemnification may be made.
SECTION 5. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY
OR PARTLY SUCCESSFUL. Notwithstanding any other provision of this Agreement, to
the extent that Indemnitee is, by reason of his Corporate Status, a party to (or
a participant in) and is successful, on the merits or otherwise, in defense of
any Proceeding, he shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in defense of such Proceeding but is
successful, on the merits or otherwise, as to one or more but less than all
claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by him or on
his behalf in connection with each successfully resolved claim, issue or matter.
For purposes of this Section and without limitation, the termination of any
claim, issue or matter in such a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such claim, issue or
matter.
SECTION 6. INDEMNIFICATION FOR EXPENSES AS A WITNESS.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to
which Indemnitee is not a party, he shall be indemnified against all Expenses
actually and reasonably incurred by him or on his behalf in connection
therewith.
SECTION 7. ADVANCEMENT OF EXPENSES. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within ten (10) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it ultimately shall
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
SECTION 8. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO
INDEMNIFICATION. (a) To obtain indemnification under this Agreement, Indemnitee
shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee and
is reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
(b) On written request by Indemnitee for indemnification pursuant
to the first sentence of Section 8(a), a determination, if required by
applicable law, with respect to
-3-
Indemnitee's entitlement thereto shall be made in the specific case: (i) if a
Change in Control (as hereinafter defined) shall have occurred within two (2)
years prior to the date of such written request, by Independent Counsel (as
hereinafter defined) in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee; or (ii) if a Change of Control shall not have occurred
within two (2) years prior to the date of such written request, (A) by a
majority vote of the Disinterested Directors (as hereinafter defined), even
though less than a quorum of the Board, or (B) if there are no such
Disinterested Directors, or if such Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee; and, if it is so determined that Indemnitee is entitled
to indemnification, payment to Indemnitee shall be made within ten (10) days
after such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity on
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b),
the Independent Counsel shall be selected as provided in this Section 8(c). If a
Change of Control shall not have occurred within two (2) years prior to the date
of Indemnitee's written request for indemnification pursuant to Section 8(a),
the Independent Counsel shall be selected by the Board, and the Company shall
give written notice to Indemnitee advising him of the identity of the
Independent Counsel so selected. If a Change of Control shall have occurred
within two (2) years prior to the date of Indemnitee's written request for
indemnification pursuant to Section 8(a), the Independent Counsel shall be
selected by Indemnitee (unless Indemnitee shall request that such selection be
made by the Board, in which event the preceding sentence shall apply), and
Indemnitee shall give written notice to the Company advising it of the identity
of the Independent Counsel so selected. In either event, Indemnitee or the
Company, as the case may be, may, within ten (10) days after such written notice
of selection shall have been given, deliver to the Company or to Indemnitee, as
the case may be, a written objection to such selection; PROVIDED, HOWEVER, that
such objection may be asserted only on the ground that the Independent Counsel
so selected does not meet the requirements of "Independent Counsel" as defined
in Section 17, and the objection shall set forth with particularity the factual
basis of such assertion. If such written objection is so made and substantiated,
the Independent Counsel so selected may not serve as Independent Counsel unless
and until such objection is withdrawn or a court has determined that such
objection is without merit. If (i) the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b)
and (ii) within twenty (20) days after submission by Indemnitee of a written
request for indemnification pursuant to Section 8(a), no Independent Counsel
shall have been selected and not objected to, either the Company or Indemnitee
may petition the Court of Chancery or other court of competent jurisdiction for
resolution of any objection which shall have been made by the Company or
Indemnitee to the other's selection of Independent Counsel
-4-
and/or for the appointment as Independent Counsel of a person selected by the
petitioned court or by such other person as the petitioned court shall
designate, and the person with respect to whom all objections are so resolved or
the person so appointed shall act as Independent Counsel under Section 8(b). The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 8(b), and the Company shall pay all reasonable fees and expenses
incident to the procedures of this Section 8(c), regardless of the manner in
which such Independent Counsel was selected and appointed. If (i) Independent
Counsel does not make any determination respecting Indemnitee's entitlement to
indemnification hereunder within ninety (90) days after receipt by the Company
of a written request therefor and (ii) any judicial proceeding or arbitration
pursuant to Section 10(a)(iii) is then commenced, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
SECTION 9. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS. (a) In
making a determination with respect to entitlement to indemnification hereunder,
the person, persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 8(a), and the
Company shall have the burden of proof to overcome that presumption in
connection with the making by any person, persons or entity of any determination
contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement or conviction, or on a plea of
NOLO CONTENDERE or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
(c) Any action taken by Indemnitee in connection with any
employee benefit plan shall, if taken in good faith by Indemnitee and in a
manner Indemnitee reasonably believed to be in the interest of the participants
in or beneficiaries of that plan, be deemed to have been taken in a manner "not
opposed to the best interests of the Company" for all purposes of this
Agreement.
SECTION 10. REMEDIES OF INDEMNITEE. (a) In the event that (i) a
determination is made pursuant to Section 8 that Indemnitee is not entitled to
indemnification hereunder, (ii) advancement of Expenses is not timely made
pursuant to Section 7, (iii) Independent Counsel is to determine Indemnitee's
entitlement to indemnification hereunder, but does not make that determination
within ninety (90) days after receipt by the Company of the request for that
indemnification, (iv) payment of indemnification is not made pursuant to Section
5 or 6 within ten (10) days after receipt by the Company of a written request
therefor or (v) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is entitled to
indemnification, Indemnitee shall be entitled to an adjudication from the
-5-
Court of Chancery of his entitlement to such indemnification or advancement of
Expenses. Alternatively, Indemnitee, at his option, may seek an award in
arbitration to be conducted by a single arbitrator pursuant to the Commercial
Arbitration Rules of the American Arbitration Association. Indemnitee shall
commence such proceeding seeking an adjudication or an award in arbitration
within one hundred eighty (180) days following the date on which Indemnitee
first has the right to commence such proceeding pursuant to this Section 10(a);
PROVIDED, HOWEVER, that the foregoing clause shall not apply in respect of a
proceeding brought by Indemnitee to enforce his rights under Section 5.
(b) In the event that a determination shall have been made
pursuant to Section 8(b) that Indemnitee is not entitled to indemnification, any
judicial proceeding or arbitration commenced pursuant to this Section 10 shall
be conducted in all respects as a de novo trial, or arbitration, on the merits
and Indemnitee shall not be prejudiced by reason of that adverse determination.
In any judicial proceeding or arbitration commenced pursuant to this Section 10,
the Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section
8(b) that Indemnitee is entitled to indemnification, the Company shall be bound
by such determination in any judicial proceeding or arbitration commenced
pursuant to this Section 10, absent (i) a misstatement by Indemnitee of a
material fact, or an omission by Indemnitee of a material fact necessary to make
Indemnitee's statement not materially misleading, in connection with the request
for indemnification, or (ii) a prohibition of such indemnification under
applicable law.
(d) In the event that Indemnitee, pursuant to this Section 10,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the definition
of Expenses in Section 17) actually and reasonably incurred by him in such
judicial adjudication or arbitration, but only if he prevails therein. If it
shall be determined in said judicial adjudication or arbitration that Indemnitee
is entitled to receive part but not all of the indemnification or advancement of
expenses sought, the expenses incurred by Indemnitee in connection with such
judicial adjudication or arbitration shall be appropriately prorated.
SECTION 11. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE;
SUBROGATION. (a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal. To the extent that a change in Delaware law
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under this Agreement, it is the
intent of the parties
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hereto that Indemnitee shall enjoy by this Agreement the greater benefits so
afforded by such change.
(b) To the extent that the Company maintains an insurance policy
or policies providing liability insurance for directors, officers, employees, or
agents of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such director, officer, employee or agent under such policy or
policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all the rights of recovery
of Indemnitee, who shall execute all papers required and take all action
necessary to secure such rights, including execution of such documents as are
necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
(e) The Company's obligation to indemnify or advance Expenses
hereunder to Indemnitee with respect to Indemnitee's service at the request of
the Company as a director, officer, employee or agent of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
shall be reduced by any amount Indemnitee has actually received as
indemnification or advancement of Expenses from such other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
SECTION 12. DURATION OF AGREEMENT. This Agreement shall continue
until and terminate upon the later of: (a) ten (10) years after the date that
Indemnitee shall have ceased to serve as a director or officer of the Company or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which Indemnitee served on behalf of the Company; or
(b) the final termination of any Proceeding then pending in respect of which
Indemnitee is granted rights of indemnification or advancement of expenses
hereunder and of any proceeding commenced by Indemnitee pursuant to Section 10
relating thereto. This Agreement shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of Indemnitee and his
spouse (if Indemnitee resides in Texas or another community property state),
heirs, executors and administrators.
SECTION 13. SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable which is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; (b) such provision or
provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent
-7-
of the parties hereto; and (c) to the fullest extent possible, the provisions of
this Agreement (including, without limitation, each portion of any Section of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable which is not itself invalid, illegal or unenforceable) shall be
construed so as to give effect to the intent manifested thereby.
SECTION 14. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT
OF EXPENSES. Notwithstanding any other provision hereof, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding brought by Indemnitee or any claim therein prior to a
Change in Control, unless the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors.
SECTION 15. IDENTICAL COUNTERPARTS. This Agreement may be
executed in one or more counterparts, each of which shall for all purposes be
deemed to be an original but all of which together shall constitute one and the
same Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
SECTION 16. HEADINGS. The headings of the Sections hereof are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
SECTION 17. DEFINITIONS. For purposes of this Agreement:
(a) "ACQUIRING PERSON" means any Person who or which, together
with all Affiliates and Associates of such Person, is or are the
Beneficial Owner of twenty-five percent (25%) or more of the shares of
Common Stock then outstanding, but does not include any Exempt Person;
provided, however, that a Person shall not be or become an Acquiring
Person if such Person, together with its Affiliates and Associates,
shall become the Beneficial Owner of twenty-five percent (25%) or more
of the shares of Common Stock then outstanding solely as a result of a
reduction in the number of shares of Common Stock outstanding due to the
repurchase of Common Stock by the Company, unless and until such time as
such Person or any Affiliate or Associate of such Person shall purchase
or otherwise become the Beneficial Owner of additional shares of Common
Stock constituting one percent (1%) or more of the then outstanding
shares of Common Stock or any other Person (or Persons) who is (or
collectively are) the Beneficial Owner of shares of Common Stock
constituting one percent (1%) or more of the then outstanding shares of
Common Stock shall become an Affiliate or Associate of such Person,
unless, in either such case, such Person, together with all Affiliates
and Associates of such Person, is not then the Beneficial Owner of
twenty-five percent (25%) or more of the shares of Common Stock then
outstanding.
(b) "AFFILIATE" has the meaning ascribed to that term in Exchange
Act Rule 12b-2.
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(c) "ASSOCIATE" means, with reference to any Person, (i) any
corporation, firm, partnership, association, unincorporated organization
or other entity (other than the Company or a subsidiary of the Company)
of which that Person is an officer or general partner (or officer or
general partner of a general partner) or is, directly or indirectly, the
Beneficial Owner of 10% or more of any class of its equity securities,
(ii) any trust or other estate in which that Person has a substantial
beneficial interest or for or of which that Person serves as trustee or
in a similar fiduciary capacity and (iii) any relative or spouse of that
Person, or any relative of that spouse, who has the same home as that
Person.
(d) A specified Person is deemed the "BENEFICIAL OWNER" of, and
is deemed to "beneficially own," any securities:
(i) of which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, is the
"beneficial owner" (as determined pursuant to Exchange Act Rule
13d-3) or otherwise has the right to vote or dispose of,
including pursuant to any agreement, arrangement or understanding
(whether or not in writing); PROVIDED, HOWEVER, that a Person
shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subparagraph (i) as a
result of an agreement, arrangement or understanding to vote that
security if that agreement, arrangement or understanding: (A)
arises solely from a revocable proxy or consent given in response
to a public (that is, not including a solicitation exempted by
Exchange Act Rule 14a-2(b)(2)) proxy or consent solicitation made
pursuant to, and in accordance with, the applicable provisions of
the Exchange Act; and (B) is not then reportable by such Person
on Exchange Act Schedule 13D (or any comparable or successor
report);
(ii) which that Person or any of that Person's Affiliates
or Associates, directly or indirectly, has the right or
obligation to acquire (whether that right or obligation is
exercisable or effective immediately or only after the passage of
time or the occurrence of an event) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or on
the exercise of conversion rights, exchange rights, other rights,
warrants or options, or otherwise; provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," securities tendered pursuant to a tender or
exchange offer made by that Person or any of that Person's
Affiliates or Associates until those tendered securities are
accepted for purchase or exchange; or
(iii) which are beneficially owned, directly or
indirectly, by (A) any other Person (or any Affiliate or
Associate thereof) with which the specified Person or any of the
specified Person's Affiliates or Associates has any agreement,
arrangement or understanding (whether or not in writing) for the
purpose of acquiring, holding, voting (except pursuant to a
revocable proxy or consent as described in the proviso to
subparagraph (i) of this definition) or disposing of any
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voting securities of the Company or (B) any group (as that term
is used in Exchange Act Rule 13d-5(b)) of which that specified
Person is a member;
PROVIDED, HOWEVER, that nothing in this definition shall cause a Person
engaged in business as an underwriter of securities to be the
"Beneficial Owner" of, or to "beneficially own," any securities acquired
through such Person's participation in good faith in a firm commitment
underwriting until the expiration of forty (40) days after the date of
that acquisition. For purposes of this Agreement, "voting" a security
shall include voting, granting a proxy, acting by consent, making a
request or demand relating to corporate action (including, without
limitation, calling a stockholder meeting) or otherwise giving an
authorization (within the meaning of Section 14(a) of the Exchange Act)
in respect of such security.
(e) "CHANGE OF CONTROL" means the occurrence of any of the
following events that occurs after the IPO Closing Date: (i) any Person
becomes an Acquiring Person; (ii) at any time the then Continuing
Directors cease to constitute a majority of the members of the Board;
(iii) a merger of the Company with or into, or a sale by the Company of
its properties and assets substantially as an entirety to, another
Person occurs and, immediately after that occurrence, any Person, other
than an Exempt Person, together with all Affiliates and Associates of
such Person, shall be the Beneficial Owner of twenty-five percent (25%)
or more of the total voting power of the then outstanding Voting Shares
of the Person surviving that transaction (in the case or a merger or
consolidation) or the Person acquiring those properties and assets
substantially as an entirety.
(f) "COMMON STOCK" means the common stock, par value $.001 per
share, of the Company.
(g) "CONTINUING DIRECTOR" means at any time any individual who
then (i) is a member of the Board and was a member of the Board as of
the IPO Closing Date or whose nomination for his first election, or that
first election, to the Board following that date was recommended or
approved by a majority of the then Continuing Directors (acting
separately or as a part of any action taken by the Board or any
committee thereof) and (ii) is not an Acquiring Person, an Affiliate or
Associate of an Acquiring Person or a nominee or representative of an
Acquiring Person or of any such Affiliate or Associate.
(h) "CORPORATE STATUS" describes the status of a person who is or
was a director, officer, employee or agent of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the
written request of the Company. For purposes of this Agreement, "serving
at the request of the Company" includes any service by Indemnitee which
imposes duties on, or involves services by, Indemnitee with respect to
any employee benefit plan or its participants or beneficiaries.
(i) "COURT OF CHANCERY" means the Court of Chancery of the State
of Delaware.
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(j) "DISINTERESTED DIRECTOR" means a director of the Company who
is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee hereunder.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "EXEMPT PERSON" means (i)(A) the Company, any subsidiary of
the Company, any employee benefit plan of the Company or of any
subsidiary of the Company and (B) any Person organized, appointed or
established by the Company for or pursuant to the terms of any such plan
or for the purpose of funding any such plan or funding other employee
benefits for employees of the Company or any subsidiary of the Company
and (ii) Indemnitee, any Affiliate or Associate of Indemnitee or any
group (as that term is used in Exchange Act Rule 13d-5(b)) of which
Indemnitee or any Affiliate or Associate of Indemnitee is a member.
(m) "EXPENSES" include all attorneys' fees, retainers, court
costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, all other disbursements or expenses of
the types customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend, investigating, being or
preparing to be a witness in, or otherwise participating in, a
Proceeding and all interest or finance charges attributable to any
thereof. Should any payments by the Company under this Agreement be
determined to be subject to any federal, state or local income or excise
tax, "Expenses" also shall include such amounts as are necessary to
place Indemnitee in the same after-tax position (after giving effect to
all applicable taxes) he would have been in had no such tax been
determined to apply to such payments.
(n) "INDEPENDENT COUNSEL" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five (5) years has been, retained to
represent: (i) the Company, its affiliates or Indemnitee in any matter
material to either such party; or (ii) any other party to the Proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding
the foregoing, the term "Independent Counsel" shall not include any
person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Company or Indemnitee in an action to determine Indemnitee's rights
under this Agreement.
(o) "IPO" means the first time a registration statement filed
under the Securities Act of 1933, as amended, and respecting an
underwritten primary offering by the Company of shares of Common Stock
is declared effective under that act and the shares registered by that
registration statement are issued and sold by the Company (otherwise
than pursuant to the exercise of any over-allotment option).
(p) "IPO CLOSING DATE" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.
-11-
(q) "PERSON" means any natural person, sole proprietorship,
corporation, partnership of any kind having a separate legal status,
limited liability company, business trust, unincorporated organization
or association, mutual company, joint stock company, joint venture,
estate, trust, union or employee organization or governmental authority.
(r) "PROCEEDING" includes any action, suit, alternate dispute
resolution mechanism, hearing or any other proceeding, whether civil,
criminal, administrative, arbitrative, investigative or mediative, any
appeal in any such action, suit, alternate dispute resolution mechanism,
hearing or other proceeding and any inquiry or investigation that could
lead to any such action, suit, alternate dispute resolution mechanism,
hearing or other proceeding, except one (i) initiated by the Indemnitee
pursuant to Section 10 to enforce his rights hereunder or (ii) pending
on or before the date of this Agreement.
(s) "VOTING SHARES" means: (i) in the case of any corporation,
stock of that corporation of the class or classes having general voting
power under ordinary circumstances to elect a majority of that
corporation's board of directors; and (ii) in the case of any other
entity, equity interests of the class or classes having general voting
power under ordinary circumstances equivalent to the Voting Shares of a
corporation.
SECTION 18. MODIFICATION AND WAIVER. No supplement, modification
or amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
SECTION 19. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to
notify the Company in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may be subject to indemnification or advancement of
Expenses covered hereunder; however, failure to give such notice shall not
deprive Indemnitee of his rights to indemnification and advancement of Expenses
under this Agreement unless the Company is actually and materially prejudiced
thereby.
SECTION 20. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (a) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed or (b) mailed by
certified or registered mail with postage prepaid, on the third (3rd) business
day after the date on which it is so mailed:
(a) If to Indemnitee, to: _______________________
_______________________
_______________________
(b) If to the Company, to: Cornell Corrections, Inc.
4801 Woodway, Suite 400W
-12-
Houston, Texas 77056
Attention: Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
SECTION 21. CONTRIBUTION. To the fullest extent permissible under
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee,
whether for judgments, fines, penalties, excise taxes, amounts paid or to be
paid in settlement and/or for Expenses, in connection with any claim relating to
an indemnifiable event under this Agreement, in such proportion as is deemed
fair and reasonable in light of all the circumstances of such Proceeding in
order to reflect: (a) the relative benefits received by the Company and
Indemnitee as a result of the event(s) and/or transaction(s) giving cause to
such Proceeding; and/or (b) the relative fault of the Company (and its
directors, officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s).
SECTION 22. GOVERNING LAW; SUBMISSION TO JURISDICTION. This
Agreement and the legal relations among the parties shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware,
without regard to its conflict of laws rules. Except with respect to any
arbitration commenced by Indemnitee pursuant to Section 10(a), the Company and
Indemnitee hereby irrevocably and unconditionally (a) agree that any action or
proceeding arising out of or in connection with this Agreement shall be brought
only in the Court of Chancery and not in any other state or federal court in the
United States of America or any court in any other country, (b) consent to
submit to the exclusive jurisdiction of the Court of Chancery for purposes of
any action or proceeding arising out of or in connection with this Agreement,
(c) waive any objection to the laying of venue of any such action or proceeding
in the Court of Chancery, and (d) waive, and agree not to plead or to make, any
claim that any such action or proceeding brought in the Court of Chancery has
been brought in an improper or otherwise inconvenient forum.
SECTION 23. MISCELLANEOUS. Use of the masculine pronoun shall be
deemed to include usage of the feminine pronoun where appropriate. When used in
this Agreement, the words "herein," "hereof" and words of similar import shall
refer to this Agreement as a whole and not to any provision of this Agreement,
and the word "Section" refers to a Section of this Agreement, unless otherwise
specified.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
ATTEST: CORNELL CORRECTIONS, INC.
By: By:
Name:
Title:
ATTEST: INDEMNITEE:
By: By:
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EXHIBIT 10.4
DRAFT: 8/22/96
STOCKHOLDERS AGREEMENT
BY AND AMONG
CERTAIN STOCKHOLDERS OF
CORNELL CORRECTIONS, INC.
___________________, 1996
<PAGE>
TABLE OF CONTENTS
Section 1. DEFINITIONS.....................................................1
Section 2. CERTIFICATE OF INCORPORATION; BY-LAWS; DIRECTORS................1
Section 3. EFFECTIVE TIME..................................................2
Section 4. TERMINATION.....................................................3
Section 5. SPECIFIC PERFORMANCE............................................3
Section 6. MISCELLANEOUS...................................................3
<PAGE>
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated as of _____________, 1996, by and
among (a) David M. Cornell ("Cornell"), (b) Charterhouse Equity Partners II,
L.P. and Chef Nominees Limited (collectively, "Charterhouse Group"), and (c)
Concord Partners; Concord Partners II, L.P.; Concord Partners Japan Limited; and
Dillon Read & Co., as Agent; Lexington Partners III, L.P. and Lexington Partners
IV, L.P. (collectively, "Dillon Read Group"). Cornell, Charterhouse Group, and
Dillon Read Group are also collectively referred to herein as the "Holders."
WITNESSETH:
In consideration of the mutual covenants and agreements contained
herein and for other good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree, effective as of the
Effective Date (as defined in Section 3 below), as follow:
Section 1. DEFINITIONS. The following shall have (unless
otherwise provided elsewhere in this Agreement) the following respective
meanings (such meanings being equally applicable to both the singular and plural
form of the terms defined).
"AGREEMENT" means this Stockholders Agreement, including all
amendments, modifications and supplements and any exhibits or schedules to any
of the foregoing, and shall refer to the Agreement as the same may be in effect
at the time such reference becomes operative.
"COMMON STOCK" means the Common Stock, par value $.001 per share,
of the Company.
Section 2. CERTIFICATE OF INCORPORATION; BY-LAWS; DIRECTORS.
(a) The Company has previously furnished to the Holders copies of
the Restated Certificate of Incorporation dated _____________, 1996 of the
Company and the Amended and Restated Bylaws dated _____________, 1996 of the
Company (collectively, the "Charter Documents"). From and after the date hereof,
each Holder shall vote all shares of Common Stock beneficially held by him or it
(including any shares of Common Stock hereafter acquired or owned by such
Holder), at any regular or special meeting of stockholders of the Company and
shall otherwise take all actions necessary to ensure that the Charter Documents
do not, at any time, conflict with the provisions of this Agreement.
(b) From and after the date hereof, each Holder shall vote all
shares of Common Stock beneficially held by him or it (including any shares of
Common Stock hereafter acquired or owned by such Holder), at any regular or
special meeting of stockholders of the Company called for
1
the purpose of filling positions on the Board of Directors of the Company and
shall otherwise take all actions necessary to ensure that the following members
are elected to the Board of Directors of the Company: (i) one individual
designated by David M. Cornell (the "Cornell Nominee"), (ii) one individual
designated by Charterhouse Group (the "Charterhouse Nominee"), and (iii) one
individual designated by Dillon Read Group (the "Dillon Read Nominee").
(c) If, prior to his or her election to the Board of Directors of
the Company pursuant to Section 2(b) hereof, any nominee shall be unable or
unwilling to serve as a director of the Company, the entity designating such
nominee shall be entitled to nominate a replacement who shall then be the
Cornell Nominee, Charterhouse Nominee or Dillon Read Nominee, as the case may
be, for the purposes of this Section 2. If, following election to the Board of
Directors of the Company pursuant to Section 2(b) hereof, any Cornell Nominee,
Charterhouse Nominee, or Dillon Read Nominee shall resign or be removed or be
unable to serve for any reason prior to the expiration of his or her term as a
director of the Company, then the person or entity designating such nominee may,
at any time thereafter, notify the other Holders in writing of a replacement,
and the remaining Cornell Nominee, Charterhouse Nominee and Dillon Read Nominee,
as applicable, and Cornell, Charterhouse Group and Dillon Read Group, shall take
all actions necessary to ensure the election to the Board of Directors of the
Company of such replacement nominee to fill the unexpired term of the prior
nominee.
(d) Each Holder hereby agrees to use such Holder's best efforts
to call, or cause the appropriate officers and directors of the Company to call,
a special or annual meeting of stockholders of the Company and to vote all of
the shares of Common Stock owned or controlled by such Holder for the removal
(with or without cause) of any nominee designated and elected pursuant to
Section 2(b) hereof if the person or entity designating such nominee shall have
given written notice to each of the other Holders of its desire to have such
nominee removed.
(e) Each Holder hereby agrees that, except as provided in Section
2(d) hereof, he or it shall not vote to remove any director who is a Cornell
Nominee, Charterhouse Nominee or Dillon Read Nominee without Cause (as such term
is hereinafter defined). For the purposes of this Section 2(e) only, "Cause"
shall mean (i) the commission by a director of an act of fraud or embezzlement
against the Company or any of its subsidiaries or (ii) a conviction for a felony
(or a plea of NOLO CONTENDERE thereto) or guilty plea of such director with
respect to a felony.
(f) In order to effectuate the provisions of this Section 2, the
Holders hereby agree that when any action or vote is required to be taken by
such Holders pursuant to this Agreement, such Holders shall use their respective
best efforts to call, or cause the appropriate officers and directors of the
Company to call, a special or annual meeting of stockholders of the Company, as
the case may be, to effectuate such stockholder action.
Section 3. EFFECTIVE TIME. This Agreement shall become effective
only upon the closing date (the "Effective Date") of an initial public offering
of shares of Common Stock by the Company pursuant to a registration statement
that shall have become effective under the
2
Securities Act of 1933, as amended. If the Effective Date has not occurred prior
to December 31, 1996, this Agreement shall become null and void and be of no
force or effect.
Section 4. TERMINATION.
(a) This Agreement will terminate upon the first to occur of (i)
four years from the Effective Date or (ii) the Holders collectively owning less
than 25% of the outstanding shares of Common Stock of the Company.
(b) This Agreement will terminate as to any Holder upon such
Holder owning less than 5% of the outstanding shares of Common Stock of the
Company.
Section 5. SPECIFIC PERFORMANCE. Each of the Holders acknowledges
and agrees that in the event of any breach of this Agreement, the non-breaching
party or parties would be irreparably harmed and could not be made whole by
monetary damages. It is accordingly agreed that the Holders shall waive the
defense in any action for specific performance that a remedy at law would be
adequate and that the Holders, in addition to any other remedy to which they may
be entitled at law or in equity, shall be entitled to compel specific
performance of this Agreement.
Section 6. MISCELLANEOUS.
(a) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not control or affect the meaning or construction of
any provisions hereof.
(b) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein, and there are no restrictions, promises,
representations, warranties, covenants, or undertakings with respect to the
subject matter hereof, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties hereto with respect to the subject matter hereof except to
the extent expressly set forth herein.
(c) NOTICES. Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Agreement shall be sufficiently given or made if in
writing and (i) delivered in person with receipt acknowledged, (ii) sent by
registered or certified mail, return receipt requested, postage prepaid, (iii)
sent by overnight courier with guaranteed next day delivery or (iv) sent by
telex or telecopier to the party to whom directed at the following address:
3
(i) If to Cornell, to him at:
David M. Cornell
Cornell Corrections, Inc.
4801 Woodway
Suite 400W
Houston, Texas 77056
Fax: (713) 623-2853
(ii) If to any Charterhouse Group entity, to it at:
Charterhouse Equity Partners II, L.P.
535 Madison Avenue
New York, NY 10022-4299
Attention: Richard T. Henshaw
Fax: (212) 750-9704
(iii) If to any Dillon Read Group entity, to it at:
Dillon Read & Co. Inc.
535 Madison Avenue
New York, New York 10022
Attention: Peter Leidel
Fax: (212) 308-5107
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, three (3) business days after the same
shall have been deposited in the United States mail, one business day after sent
by overnight courier or on the day telexed or telecopied.
(d) APPLICABLE LAW. The laws of the State of New York shall
govern the interpretation, validity and performance of the terms of this
Agreement, regardless of the law that might be applied under applicable
principles of conflicts of laws.
(e) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement in any jurisdiction shall not affect the validity,
legality or enforceability of the remainder of this Agreement in such
jurisdiction or the validity, legality or enforceability of this Agreement,
including any provision, in any other jurisdiction, it being intended that all
rights and obligations of the parties hereunder shall be enforceable to the
fullest extent permitted by law.
4
(f) SUCCESSOR, ASSIGNS, TRANSFEREES. The provisions of this
Agreement shall be binding upon and accrue to the benefit of the parties hereto
and their respective heirs, successors and permitted assigns.
(g) AMENDMENTS; WAIVERS. This Agreement may not be amended,
modified or supplemented and no waivers of or consent to departures from the
provisions hereof may be given unless consented to in writing by the
Charterhouse Group, Dillon Read Group and Cornell.
(h) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same Agreement.
5
IN WITNESS WHEREOF, the parties hereto have executed this
Stockholders Agreement as of the date first above written.
DAVID M. CORNELL
CHARTERHOUSE EQUITY
PARTNERS II, L.P.
By: Chusa Equity Investors II, L.P.
By: Charterhouse Equity II, Inc.
By:
Title:
CHEF NOMINEES LIMITED
By: Charterhouse Group International Inc.,
Attorney-in-fact
By:
Title:
CONCORD PARTNERS
By:
Title:
CONCORD PARTNERS II, L.P.
By:
Title:
6
CONCORD PARTNERS JAPAN LIMITED
By:
Title:
DILLON READ & CO., INC., as Agent
By:
Title:
LEXINGTON PARTNERS III, L.P.
By:
Title:
LEXINGTON PARTNERS IV, L.P.
By:
Title:
7
APPROVED BY THE
STANDARD AGREEMENT-- ATTORNEY GENERAL CONTRACT NUMBER AM. NO.
R92.401
TAXPAYERS FEDERAL EMPLOYER IDENTIFICATION NUMBER
94-2411045
This AGREEMENT, made and entered into this 25TH day of JUNE, 1992 in the State
of California, by and between State of California, through its duly elected or
appointed, qualified and acting
- --------------------------------------------------------------------------------
TITLE OF OFFICER ACTING FOR STATE AGENCY
Contract Services Section Chief Department of Corrections,
- --------------------------------------------------------------------------------
hereafter called the State, and
CONTRACTOR'S NAME
Eclectic Communications, Inc. (Baker CCF),
- --------------------------------------------------------------------------------
hereafter called the Contractor,
WITNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed,
does hereby agree to furnish to the State services and materials as follows: SET
FORTH SERVICE TO BE RENDERED BY CONTRACTOR, AMOUNT TO BE PAID CONTRACTOR, TIME
FOR PERFORMANCE OR COMPLETION, AND ATTACH PLANS AND SPECIFICATIONS, IF ANY.)
1. PURSUANT TO SECTIONS 6250-56 OF THE CALIFORNIA PENAL CODE, TITLE 15,
CHAPTER 1, RULES AND REGULATIONS OF THE DIRECTOR OF THE CALIFORNIA
DEPARTMENT OF CORRECTIONS (CDC) AND THE DEPARTMENT'S OPERATIONS MANUAL
(DOM), THE CONTRACTOR AGREES TO PROVIDE HOUSING, SUSTENANCE, SUPERVISION
AND/OR OTHER SUCH SERVICES AND ACCOMMODATIONS FOR SELECTED INMATES WHO MEET
COMMUNITY CORRECTIONAL FACILITY SCREENING CRITERIA WHO ARE UNDER THE
JURISDICTION OF THE DIRECTOR OF CDC, AND WHO HEREINAFTER SHALL BE REFERRED
TO AS THE STATE'S PARTICIPANTS OR INMATES. CONTRACTOR'S SERVICES SHALL BE
PROVIDED IN ACCORDANCE WITH THE FOLLOWING:
A) THE SCOPE OF SERVICES (ATTACHMENT A, ATTACHED HERETO AND INCORPORATED
HEREIN);
B) THE GENERAL TERMS AND CONDITIONS (ATTACHMENT B, ATTACHED HERETO AND
INCORPORATED HEREIN);
CONTINUED ON 23 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER
================================================================================
The provisions on the reverse side hereof constitute a part of this agreement.
IN WITNESS WHEREOF, this agreement has been executed by the parties hereto, upon
the date first above written.
================================================================================
STATE OF CALIFORNIA CONTRACTOR
================================================================================
CONTRACTOR (IF OTHER THAN AN INDIVIDUAL,
STATE WHETHER A CORPORATION,
AGENCY PARTNERSHIP, ETC.)
Department of Corrections Eclectic Communications, Inc.
- --------------------------------------------------------------------------------
BY (AUTHORIZED SIGNATURE) BY (AUTHORIZED SIGNATURE)
/s/ FRANK E. RENWICK /s/ ARTHUR MCDONALD
Frank E. Renwick Arthur McDonald
- --------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING PRINTED NAME OF PERSON SIGNING
FRANK E. RENWICK, CHIEF Arthur McDonald, President
- --------------------------------------------------------------------------------
TITLE ADDRESS 1823 KNOLL DRIVE
CONTRACT SERVICES SECTION VENTURA, CA 93003 (805) 644-8700
- --------------------------------------------------------------------------------
AMOUNT ENCUMBERED BY THIS PROGRAM/CATEGORY (CODE AND TITLE) FUND TITLE
DOCUMENT SUPPORT PROGRAM 31 GENERAL
$ 4,097,391.00 ---------------------------------------------------
- ---------------------------- (OPTIONAL USE)
PRIOR AMOUNT ENCUMBERED FOR 3480/90003
OPTIONAL USES --------------------------------------------------
$ -0- ITEM CHAPTER STATUTE FISCAL YEAR
- ---------------------------- 5420-001-001 (5260) PEND 1992 92/93
TOTAL AMOUNT ENCUMBERED TO ---------------------------------------------------
DATE OBJECT OF EXPENDITURE (CODE AND TITLE)
$4,097,391.00 418.14 RETURN TO CUSTODY
- ---------------------------- ---------------------------------------------------
- --------------------------------------------------------------------------------
I HEREBY CERTIFY UPON MY OWN PERSONAL KNOWLEDGE T.B.A. NO. B.R. NO.
THAT BUDGETED FUNDS ARE AVAILABLE FOR THE PERIOD
AND PURPOSE OF THE EXPENDITURE STATED ABOVE.
- --------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER DATE
/s/ SHIRLEY A. CLARK 6/13/92
Shirley A. Clark
================================================================================
[ ] CONTRACTOR [ ] STATE AGENCY [ ] DEPT OF GEN. SER. [ ] CONTROLLER [ ]
DEPARTMENT OF GENERAL SERVICES
USE ONLY
APPROVED
Oct. 9, 1992
BY: /s/ GARY NESS
-------------
Gary Ness
Asst. Chief Counsel
2
1. Pursuant to Sections 6250-56 of the California Penal Code, Title 15,
Chapter 1, Rules and Regulations of the Director of the California
Department of Corrections (CDC) and the Department's Operations Manual
(DOM), the Contractor agrees to provide housing, sustenance, supervision
and/or other such services and accommodations for selected inmates who
meet community correctional facility screening criteria who are under the
jurisdiction of the Director of CDC, and who hereinafter shall be referred
to as the State's participants or inmates. Contractor's services shall be
provided in accordance with the following:
a) the Scope of Services (Attachment A, attached hereto and
incorporated herein);
b) the General Terms and Conditions (Attachment B, attached hereto and
incorporated herein);
c) the Contractor's Program Statement (Attachment C, attached hereto
and incorporated herein);
d) the State's Statement of Work for Private Community Correctional
Facilities (by reference is a part of the contract); and
e) the State's Financial Management Handbook (by reference is a part of
the contract).
2. The period of this agreement shall commence July 1, 1992 upon approval by
the Department of General Services, and unless otherwise terminated by
either party as herein provided, shall expire not later than June 30,
1997.
3. The total amount payable under this contract in fiscal year 1992/93 shall
not exceed Four Million Ninety-Seven Thousand Three Hundred Ninety-One
Dollars ($4,097,391).
4. Prior to June 30th of each fiscal year, this contract will be amended to
add the necessary encumbrances applicable to the subsequent fiscal year.
The term "fiscal year" refers to the period July 1 of one calendar year
through June 30th of the next calendar year.
3
Attachment A
SCOPE OF SERVICES
ECLECTIC COMMUNICATIONS, INC.
Contract No. R92.401
Contractor agrees to provide housing, sustenance, supervision and/or other such
services and accommodations for selected inmates who meet community correctional
facility screening criteria in a 250-bed facility (of which the State is
contracting for 250 beds) operated by the Contractor and named "Baker CCF"
located at 10 Lakeview Drive, Baker, California in the Class A Standard
Metropolitan Statistical Area (SMSA) designated as "Los
Angeles/Anaheim/Riverside".
The State and Contractor mutually agree to the following:
1. FINANCIAL MANAGEMENT HANDBOOK
In the performance of this contract, the Contractor agrees to comply
with the terms and conditions contained in the Financial Management
Handbook (FMH). Revisions to the FMH which do not alter or change the
intent of the program can be made without amending the contract. As
revisions are issued, Contractor agrees to insert the revised pages in
their copy of the FMH, and the revisions become effective on the date
stipulated in the transmittal letter.
2. ORGANIZATION CHART AND DUTY STATEMENTS
Contractor agrees prior to placement of State participants in the
program to prepare and submit to the Community Correctional Center
Administration an up-to-date organization chart and duty statement for
each of the positions utilized to staff the facility.
3. PARTICIPANT DAYS AND RATES
(a) For fiscal year 1992/93, the Contractor agrees to provide
services for as many as 91,250 participant days for male
participants selected and assigned to the facility by the
State, and the Contractor will be reimbursed at the rate of
$38.74 per participant day.
(b) An adjustment to the per diem rate shall be allowed if there
is a change in either the size and/or location of the facility
or in the program. An adjustment to the per diem rate may be
allowed if the State establishes a new rate based on actual
program costs and legislatively approved funding. All charges
by the Contractor will be reported in accordance with the FMH,
and charges based upon the per diem rate will be reported on
forms contained in Appendix B of the FMH.
4. PARTICIPANT RECORDS
4
(a) The Contractor agrees to maintain a monthly "Register of
Participation" (contained in Appendix B of the FMH) which will
list each participant's name, CDC case file number,
participation period, and other data. The Register of
Participation shall be submitted in triplicate with the
Contractor's corresponding "Monthly Invoice" (contained in
Appendix B of the FMH).
(b) Contractor agrees to provide to the State on a daily basis
information regarding arrival and departure of those State
participants in Contractor's program as referenced in the
Statement of Work.
5. REPORTING REQUIREMENTS
Contractor agrees to complete and submit to the State various
standardized case- related and administrative forms and reports which
are to be submitted in such a manner and at such times as shall be
determined by the Parole and Community Services Division.
Contractor agrees to prepare and submit monthly, quarterly and annual
cost reports contained in Appendices B, C, D and E of the FMH.
6. WORK CREW ASSIGNMENTS
Contractor agrees to assign facility participants to work crew
assignments within the facility to offset program expenses related to
grounds and building maintenance, housekeeping and food services.
7. FACILITY LEASE/USE AND RENOVATION COSTS
(a) The State shall reimburse the Contractor monthly for actual
facility lease/use costs at an amount not to exceed $32,314
per month effective July 1, 1992. The fee shall be paid
monthly in arrears and shall be reported in addition to other
charges on the Contractor's monthly invoice. In subsequent
months, this fee can be adjusted to reflect: 1) any
adjustments allowed in accordance with the terms contained
herein and in the FMH, and 2) any legislatively approved
funding considerations.
(b) In the event Contractor's lease expires prior to the
expiration of this contract, the State will pay only for those
monthly lease/use fees negotiated between the State and
Contractor in accordance with the terms and conditions
contained in the FMH.
(c) Facility lease costs can be increased to include the necessary
facility renovation costs, based on the lowest of those
acceptable bids, amortized in accordance with Section 1433 of
the State Administrative Manual for the following periods and
rates:
PERIOD MONTHLY RATE RENOVATION DESCRIPTION
------ ------------ ----------------------
5
7/1/89 through $7,192 Initial renovation
6/30/99 (120 months) (facility kitchen/misc.
for program preparation
5/1/90 through $2,703 Facility renovation/
4/30/95 (60 months) program development costs
for bed expansion
At the conclusion of the amortization periods, there shall be
no further reimbursements for the renovation costs.
Thereafter, the total costs shall be consistent with the
facility lease/use rate specified in subparagraph 7(a).
(d) In the event of contract termination, the State shall
reimburse the Contractor for any renovation and/or program
development costs remaining on established monthly
amortization schedule(s) specified in subparagraph 7(c). The
Contractor agrees that any supplies and/or equipment acquired
through renovation and/or program development costs will
remain State owned property. Accordingly, the State shall take
possession of such supplies and/or equipment should the
contract be terminated or not renewed.
8. EQUIPMENT REQUEST AND REPLACEMENT FUND PROCEDURES
(a) Contractor shall establish an equipment replacement fund and,
on a monthly basis, place $4,942 in an account insured by an
agency of the federal government. The account will be used to
replace nonexpendable equipment. The Contractor will report
quarterly any changes to the equipment replacement fund on the
Statement of Changes in Equipment Replacement Fund form
(Appendix C, CDC Form 2109 in the FMH).
(b) Contractor agrees to obtain prior written approval before
purchasing any nonexpendable State equipment as defined in the
FMH. The Contractor agrees to solicit at least three
competitive bids on each item for the purchase of
nonexpendable equipment necessary to operate the facility. The
bids are to be written on the Price Quotation Only form
(Appendix I of the FMH). These forms will be forwarded to the
Parole and Community Services Division, Community Correctional
Center Administration (CCCA) in Sacramento.
(c) Contractor's accepted bid(s) cannot exceed State procurement
prices for similar nonexpendable equipment as allotted by
CCCA, and should be awarded to the vendor submitting the
lowest responsible bid. Subject to prior CCCA approval, the
Contractor MAY accept a higher bid(s) if the --- bidder is a
minority, women or disabled veteran business enterprise
(M/W/DVBE), and will therefore facilitate the Contractor's
compliance with the State's M/W/DVBE participation program
requirements. The Contractor MUST award a bid(s) to any
M/W/DVBE(s) who have been listed ---- on the State's
"Mandatory M/W/DVBE Participation Worksheet" to meet
6
participation compliance goals. Substitution of such
identified M/W/DVBE(s) is subject to prior CCCA approval.
(d) The nonexpendable equipment purchased will remain State
property and will be decaled accordingly. Nonexpendable
equipment costs will not be reimbursed to the Contractor until
a Stock Received Report (Appendix I, Std. Form 106 in the FMH)
and a legible copy of the sales receipt, which identifies the
type and kind of equipment purchased, is received and approved
by CCCA.
(e) On an annual basis, Contractor will complete an equipment
inventory which will include nonexpendable and expendable
equipment. This annual report shall be submitted each July to
the Parole & Community Services Division, CCCA in Sacramento.
(f) At the end of the contract period, or in the event of contract
termination, a CDC representative shall conduct a final
physical inventory of Contractor's nonexpendable and
expendable equipment. Contractor shall be held responsible for
any discrepancies arising as a result of the final audit.
9. INSURANCE REQUIREMENTS AND REIMBURSEMENT RATES
(a) State shall reimburse the Contractor in arrears for the actual
cost of general liability insurance only as specified in the
FMH. The reimbursement of automobile and other insurance costs
are included in the per diem rate. Reimbursement for general
liability insurance shall not exceed $55,858 for the 1992/93
fiscal year. A copy of the bill from the Contractor's
insurance carrier clearly stating the term, facility location,
type of coverage and cost must accompany the invoice submitted
to the State for reimbursement.
(b) Contractor shall be insured by a "claims made" or a "per
occurrence" policy and shall furnish to the State a
certificate of insurance stating that there is commercial
general and automobile liability insurance presently in effect
for the Contractor of not less than $1,000,000 per occurrence
for bodily injury and property damage liability combined and
automobile insurance of not less than $500,000 per occurrence.
(c) The certificate of insurance must include the following
provisions:
The insurer will not cancel the insured's coverage
without 30 days prior written notice to the State;
and
The State of California, its officers, agents,
employees and servants are included as additional
insured, but only insofar as the operations under
this contract are concerned.
(d) Contractor agrees that the insurance herein provided for shall
be in effect at all times during the term of this contract. In
the event said
7
insurance coverage expires at any time during the term of this
contract, Contractor agrees to provide at least 30 days prior
to said expiration date, a new certificate of insurance
evidencing insurance coverage as provided for herein for not
less than the remainder of the term of the contract, or for a
period of not less than one year. New certificates of
insurance are subject to the approval of the Department of
General Services, and Contractor agrees that no work or
services shall be performed prior to the giving of such
approval. In the event Contractor fails to keep in effect at
all times insurance coverage as herein provided, the State
may, in addition to any other remedies it may have, terminate
this contract upon the occurrence of such event.
10. FIRE CLEARANCE REPORT
(a) Pursuant to Section 13143.6 of the California Health and
Safety Code, the State requires the appropriate fire clearance
report from the State Fire Marshal's Office or their
designated local jurisdiction verifying that the Contractor's
facility conforms to all existing life and safety requirements
of the State Fire Advisory Board.
(b) The Contractor agrees that if the resultant report of the
State Fire Marshall or their designated local jurisdiction
reveals that the Contractor's facility does not meet such life
and safety requirements or if during the period of this
agreement Contractor's facility does not meet such
requirements, the State may immediately terminate this
contract. The Contractor further agrees to inform the State of
any action intended by the Contractor during the period of
this contract which may have the effect of necessitating the
issuance of a new fire clearance report. Fire clearances
issued by the State Fire Marshal's office are good for one
year and must be renewed annually.
11. PLACEMENT OF PARTICIPANTS
Notwithstanding any other requirements, the State shall have no
obligation under this contract to assign State participants to the
facility in the event Contractor fails to obtain the necessary local
use permit, State Fire Marshal clearance, or any other government
approval required to operate the described facility for the purposes
stated herein. This contract can be immediately terminated for
Contractor failure to secure any requirements contained herein.
12. INMATE TRUST FUND
The Contractor agrees to establish and administer an inmate trust fund
(ITF). The ITF must be held as a separate account; and commingling the
ITF with other accounts is in direct violation of the contract. Inmate
work positions will be provided and paid for by the Contractor from the
Contractor's ITF account. The Contractor shall submit a monthly invoice
to receive reimbursement from the State for payments made to inmates.
The invoice shall include a brief job description for each inmate job
assignment, hours worked,
8
rate of pay and total amount paid to each inmate. Pay scales as
outlined in CDC's Departmental Operations Manual, Section 51120, are
determined by skill levels ranging from one to five and are attached
hereto and incorporated herein (Exhibit 1). Inmate job descriptions and
pay levels can be changed only upon CDC's approval. The Contractor
shall maintain accounting records in accordance with the FMH and shall
establish adequate internal controls over the ITF.
13. TIME KEEPING SYSTEM
The Contractor agrees to establish a positive time keeping system which
includes time records of all inmates who worked. The Contractor further
agrees that inmate time records shall be maintained by the Contractor's
work crew supervisor. The time records must be submitted to a
designated CDC facility representative for approval of payment.
Attachment B
GENERAL TERMS AND CONDITIONS
ECLECTIC COMMUNICATIONS, INC.
Contract No. R92.401
1. INVOICING AND PAYMENT
For services satisfactorily rendered and upon receipt and approval of
the invoices and forms contained in Appendix B of the Financial
Management Handbook (FMH), the State agrees to compensate the
Contractor in accordance with the rates specified in the Scope of
Services (Attachment A).
Invoices and forms are to include the contract number and be submitted
in triplicate not more frequently than monthly in arrears to the
Community Correctional Center Administration (CCCA) , P.O. Box 942883,
Sacramento, CA 94283-0001, Attn: CCCA Fiscal Analyst.
Payment will be made in accordance with and within the time specified
in Government Code Section 926.17.
The State's monetary obligations under this contract are contingent
upon and subject to the availability of funds appropriated each fiscal
year for this contract.
2. AUDITS
The contracting parties shall be subject to the examination and audit
by the State Auditor General for a period of three years after final
payment under the contract in accordance with Government Code Section
10532. The examination and audit shall be confined to those matters
connected with the performance of the contract including, but not
limited to, the costs of administering the contract.
3. HIRING CONSIDERATIONS
If the contract amount is in excess of $200,000, the Contractor shall
be required to give priority consideration in filling vacancies in
positions funded by the contract to qualified recipients of aid under
Welfare and Institutions Code Section 11200.
4. BACKGROUND CHECKS
The State reserves the right to conduct a background check on the
Contractor and/or the Contractor's personnel as the State deems
necessary prior to award or during the term of the contract. The State
further reserves the right to terminate the contract should a threat to
security be determined.
5. MINORITY, WOMEN AND DISABLED VETERANS BUSINESS ENTERPRISE (M/W/DVBE)
CONDITIONS
10
To the best of the Contractor's ability, Contractor shall fulfill
his/her obligations in dispensing that portion of the contract amount
to the M/W/DVBEs as identified in the reply to the "Participation by
M/W/DVBE Policy Requirements." Said reply by reference is a part of
this contract and is on file and available for review Monday through
Friday between the hours of 8:00 a.m. and 5:00 p.m. at the following
address:
Department of Corrections
Contract Services Section
1515 S Street, Room 125-S
Sacramento, CA 95814
Contractor agrees that the State or its delegate will have the right to
review, obtain and copy all records pertaining to performance of the
contract. Contractor agrees to provide the State or its delegate with
any relevant information requested and shall permit the State or its
delegate access to its premises, upon reasonable notice, during normal
business hours for the purpose of interviewing employees and inspecting
and copying such records, accounts, and other material that may be
relevant to a matter under investigation. Contractor further agrees to
maintain such records for a period of three years after final payment
under the contract.
6. DISPUTE CLAUSE
The parties hereto mutually agree that the resolution of any claims or
disputes arising under this contract shall be resolved pursuant to the
provisions of the California Department of Corrections (CDC) Operations
Manual (DOM).
7. NATIONAL LABOR RELATIONS BOARD CERTIFICATION
Contractor by signing this contract does swear under penalty of perjury
that no more than one final unappealable finding of contempt of court
by a federal court has been issued against Contractor within the
immediately preceding two-year period because of Contractor's failure
to comply with an order of a federal court which ordered the Contractor
to comply with an order of the National Labor Relations Board (Public
Contract Code Section 10296).
8. NONDISCRIMINATION CLAUSE (STD. 17A)
During the performance of this contract, Contractor and its
subcontractors shall not unlawfully discriminate against any employee
or applicant for employment because of race, religion, color, national
origin, ancestry, physical handicap, medical condition, marital status,
age (over 40) or sex. Contractors and subcontractors shall insure that
the evaluation and treatment of their employees and applicants for
employment are free of such discrimination. Contractors and
subcontracts shall comply with the provisions of the Fair Employment
and Housing Act (Government Code Section 12900 et seq.) and the
applicable regulations promulgated thereunder (California Code of
Regulations, Title 2, Section 7285.0 et seq.). The
11
applicable regulations of the Fair Employment and Housing Commission
implementing Government Code Section 12990, set forth in Chapter 5 of
Division 4 of Title 2 of the California Code of Regulations are
incorporated into this contract by reference and made a part hereof as
set forth in full. Contractor and its subcontractors shall give written
notice of their obligations under this clause to labor organizations
with which they have a collective bargaining or other agreement. This
Contractor shall include the nondiscrimination and compliance
provisions of this clause in all subcontracts to perform work under the
contract.
9. DRUG FREE WORKPLACE CERTIFICATION
Contractor shall comply with all provisions of the Drug Free Workplace
Certification.
10. STATEMENT OF COMPLIANCE
The Contractor certifies under penalty of perjury under the laws of the
State of California that he/she has, unless exempted, complied with the
nondiscrimination program requirements of Government Code Section 12990
and Title 2, California Code of Regulations, Section 8103.
11. EMPLOYMENT OF EX-OFFENDERS
Contractor agrees that it will not either directly, or on a subcontract
basis, employ in connection with this contract:
(a) Ex-offenders on active parole or probation;
(b) Ex-offenders at any time if they are required to register as a
sex offender pursuant to Penal Code Section 290 or if such
ex-offender has an offense history involving a "violent
felony" as defined in subparagraph (c) of Section 667.5 of the
Penal Code; or
(c) Any ex-felon in a position which provides direct custody
supervision of inmates.
Ex-offenders who can provide written evidence of having satisfactorily
completed parole or probation may be considered for employment by
Contractor subject to the following limitations:
(a) Contractor shall obtain the prior written approval to employ
any such ex-offender from the Director of CDC; and
(b) Each such ex-offender whose assigned duties are to involve
administrative or policy decision-making, accounting,
procurement, cashiering, auditing, or any other
business-related administrative function shall be fully bonded
to cover any potential loss to the State or Contractor.
12
12. CONFLICT OF INTEREST
An organization will not be awarded a contract if financial interests
are held by departmental employees (or their families) when said
employees are in a decision-making capacity with respect to this
program. Likewise, the contracting agency officials and employees shall
also avoid actions resulting in or creating an appearance of:
(a) Using an official position for private gain;
(b) Giving preferential treatment to any particular person;
(c) Losing independence or impartiality;
(d) Making a decision outside official channels; and
(e) Affecting adversely the confidence of the public or local
officials in the integrity of the program.
Contracts will not be awarded to a current officer or employee of the
State. Nor will a contract be awarded to a former State employee for
two years if that employee had any part of the decision-making process
relevant to the contract, or for one year if that employee had any part
of the decision-making process relevant to the contract within the
twelve-month period prior to his or her leaving State service.
Contractor agrees that its agents, family or business partners cannot
receive or use this contract with the intent to illegally or
unethically gain personal financial benefit.
13. COMPLIANCE, MONITORING AND CORRECTIVE ACTION PROVISIONS
The State and Contractor agree to the following contract compliance,
monitoring and corrective action provisions:
(a) If the Contractor is not in compliance with a requirement of
the contract, the State can serve the Contractor with a
written Notice of Contract Compliance (NCC) and require the
Contractor to take corrective action by a specific date. This
notice can be provided by either the Community Correctional
Centers Administration (CCCA) Administrator or the Parole
Agent III responsible for the Contractor's performance under
this contract.
(b) If the noncompliance issue relates to the: (1) security of the
facility; and/or (2) health and/or safety of inmates, facility
staff or the community, the date for the corrective action may
be the same day as the notice.
(c) When the Contractor receives a NCC, the Contractor shall take
corrective action by the date specified or request a date
extension and present a
13
plan of corrective action. This request and action plan shall
be submitted in writing to the CCCA Administrator.
(d) The CCCA Administrator shall respond in writing to the
Contractor's request and action plan within 15 days of
receipt. However, the CCCA Administrator can verbally reject
the Contractor's request and plan at any time if the
noncompliance issue relates to the areas listed in
subparagraph 13(b).
(e) If the Contractor fails to take corrective action by the
deadline approved by the CCCA Administrator, the State shall
impose a one percent (1%) penalty against the total monthly
invoice for the month in which corrective action was to have
been taken.
(f) If the Contractor fails to take corrective action by 30 days
following the deadline approved by the CCCA Administrator, the
State shall impose a two percent (2%) penalty against the
total monthly invoice for the month in which corrective action
was to have been taken.
(g) For each additional successive 30 day period the Contractor
fails to take corrective action following the approved
deadline, the penalty shall be increased to twice that of the
last penalty assessed.
(h) Contractor may appeal any action(s) taken by the provisions in
subparagraphs 13(a) through (g) in accordance with the appeal
procedures outlined in CDC's DOM.
14. FACILITY LEASE AGREEMENT
Prior to the effective date of the contract, the facility lease must be
signed by the Contractor and facility owner and reviewed by the CCCA
Administrator. In order to protect the State's interest, the facility
lease between the Contractor and facility owner shall specifically
enumerate the following:
(a) The provisions contained in the General Terms and Conditions,
subparagraphs 15(a), 16(b), 16(b)(1) through (4) and 16(d) of
this contract.
(b) The lease shall remain in full force and effect for the entire
term date of the contract. Further, there shall be no
modifications made to the lease agreement without the prior
written approval of the CCCA Administrator.
(c) Unless precluded by the lease, in the event the contract is
terminated under the provisions contained in subparagraph
15.(a) and the State elects to exercise the option contained
in subparagraph 16.(b), the lessor will assign the lease to
the State, or replacement lessee approved by the State.
14
Any lease under which the facility is presently operating which does
not contain the foregoing language shall be amended at the time of
renewal to include said language.
The State's review of the facility lease agreement is limited to
ensuring that the above provisions are included. It is not the intent
of the State to review and/or approve the facility lease as regards any
other provisions contained therein.
15. CONTRACT TERMINATION CONDITIONS AND PROCEDURES
(a) The State may terminate performance of work under this
contract if the Contractor substantially fails to perform
and/or meet the requirements of this contract.
(b) Contractor may submit a written request to terminate this
contract only if the State should substantially fail to
perform its responsibilities as provided herein.
(c) The terminating party shall terminate this contract by
delivering, either in person or by registered mail, a Notice
of Termination (NOT) that specifies the reasons for
termination and the effective date. Such effective date of
contract termination shall be at least 30 calendar days after
the receiving party's receipt of the NOT from the terminating
partly.
(d) This contract may be suspended or cancelled, without notice at
the option of the Contractor, if the Contractor or State's
premises or equipment are destroyed by fire or other
catastrophe, or so substantially damaged that it is
impractical to continue service, or in the event the
Contractor is unable to render services as a result of any
governmental authority.
16. OBLIGATIONS UPON CONTRACT TERMINATION
If the contract is terminated as herein provided, the State shall give
written notice to Contractor of State's election of one of the
following options:
(a) STATE'S FIRST OPTION: State will not exercise any option to
extend or renew the existing contract and shall reimburse the
Contractor for lease costs as stated in the contract.
(b) STATE'S SECOND OPTION: If termination is pursuant to
subparagraph 15.(a) the State may continue operation of
facility and shall locate a replacement lessee for the
facility. The State shall give 30 days written notice to the
facility owner. To facilitate this option, the Contractor and
State mutually agree to the following:
15
(1) Contractor, the State, the facility owner, and each
of them individually, shall make a good faith and
reasonable effort to reduce or eliminate all further
facility lease costs required to be made pursuant to
the terms and conditions of the facility lease.
Notwithstanding the nonperformance of any of the
parties under this subparagraph, all other parties
have the responsibility to perform under this
subparagraph.
(2) Upon receipt of a notice to locate a replacement
lessee, the Contractor and/or facility owner, either
separately or jointly, will immediately submit a
written plan of action intended to follow in locating
a replacement lessee.
(3) The CCCA Administrator shall review the plan(s)
submitted by Contractor and/or facility owner. If the
CCCA Administrator concludes that the plan(s)
submitted are in any manner deficient, Contractor
and/or facility owner shall within 15 business days
specifically identify in writing what additional or
other action Contractor and/or facility owner
considers necessary to take in order to locate a
replacement lessee suitable to the State.
(4) State shall continue reimbursement of facility lease
costs to the facility owner and satisfy the facility
lease costs during the period the parties are
attempting to locate a replacement lessee. If a
replacement lessee is located, the facility owner
shall thereafter remit to State all payment received
by the facility owner from replacement lessee. State
shall continue to make all facility lease costs as
herein provided.
(c) Contractor's obligations upon contract termination. After
receipt of a NOT and unless otherwise directed by the State,
the Contractor shall immediately proceed with the following
obligations:
(1) Stop work as specified in the NOT.
(2) Neither establish nor implement any further
subcontracts nor place any further order for
materials or services except as necessary to complete
the continued portion of the contract.
(3) Terminate all subcontracts to the extent that they
relate to the work terminated.
(4) Take any action that may be necessary, or that the
State may direct, for the protection and preservation
of the property related to this contract that is in
possession or control of the Contractor and which the
State has or may acquire an interest.
(5) Settle all outstanding liabilities and termination
settlement proposals arising from terminating
subcontracts. Said settlement to be reviewed and
accepted by the State before execution.
16
(6) Complete performance of the work not terminated,
directed or authorized by the State.
(d) If Contractor ceases operation of the facility, the State will
have first priority to exercise the options of this paragraph
16.
(e) If the contract is terminated under the provisions of
subparagraph 15.(a), the State may, after exhausting the
option provided in subparagraph 16.(b), assume the relevant
debts of the Contractor in respect to this contract, and
operate the facility. Upon review and approval of CDC, the
Contractor shall then transfer to the State possession of all
equipment and supplies purchased with State funds under this
contract.
Attachment C
R92.401
COMMUNITY CORRECTIONAL FACILITY
PROGRAM STATEMENT
ECLECTIC COMMUNICATIONS, INC. BAKER FACILITY
PHYSICAL PLANT
Eclectic Communications, Inc. (ECI) will provide, ready for occupancy, a
facility suitable for 24-hour secure housing for 250 adult offenders. The
facility is equipped to monitor movement within as well as detect any
unauthorized ingress/egress and has a fire clearance approved by the State Fire
Marshal pursuant to Section 13143.6 of the Health and Safety Code. The Facility
is configured to provide sufficient space and accommodations for living and
sleeping areas, indoor and outdoor recreation and visiting, administrative
offices for contractor's staff and on-site Department of Corrections (CDC)
personnel, centralized food and household services, secure storage of residents'
personal property, and has adequate parking space for staff and visitors.
ORGANIZATION
ECI is responsible for the operation of the facility, supervision of facility
staff, and provision of housing, sustenance and services for facility residents.
Legal custody of the residents will remain with the Director of the CDC. The
security of the facility is the responsibility of on-site CDC staff who will
delegate to and monitor ECI staff in accordance with the CDC rules, regulations,
policies and procedures in carrying out these activities.
All personnel selected by ECI to work in the facility will be subject to a CDC
prescribed background investigation prior to actual employment. CDC may provide
provisional clearance for hiring employees pending final approval once
background clearances are completed. ECI will be responsible for coordinating
and providing supervision of inmates performing facility maintenance or
groundskeeping functions. ECI will operate in accordance with the CDC's
Departmental Operations Manual (DOM).
ECI will not hire or subcontract to any ex-felons on active parole or probation
or if they are required to register as a sex offender pursuant to Penal Code
Section 290 or if such offender has a violent felony as defined in Section 667.5
of the Penal Code. Ex-felons will not be in a position that provides direct
custody supervision of inmates without prior approval from CDC. It is the policy
of ECI to obtain prior written approval to employ any ex-offender from the
Director of the California Department of Corrections. If such ex-offender is
assigned duties that involve policy decision making or accounting, ECI will
fully bond this individual to cover any potential loss to the State or ECI
PROGRAM SERVICES
ECI will provide opportunities for facility inmates to participate in
pre-release programs.
Based upon the Department of Corrections objective to provide a pre-release
component to all re-entry programs, ECI will offer a pre-release component which
will include, but no be limited to: (1) a community survival skills program; (2)
a money management skills program; (3) a community service work program; (4) a
job development and preparedness training program; (5) a substance abuse and
family counseling program; (6) a vocational and educational training program
and, (7) a religious program. ECI has included in its operations manual a
detailed pre- release program that is available to all facility inmates. This
prerelease program plan has been approved by CDC.
ECI has implemented facility work crews to perform food and laundry services,
facility maintenance and groundskeeping, gardening, painting, machinery repair.
Supervision of inmates performing assignments is ECI's responsibility.
A certified education program is offered which enables inmates to receive GED's
on site.
OPERATIONS
ECI in coordination with CDC, is responsible for the operation of the Community
Correctional Facility. ECI has developed written policies and procedures for the
daily operation of the facility. These policies and procedures have written CDC
approval and include but are not limited to: (1) organizational charts; (2)
minimum staffing requirements; (3) staff duty statements; (4) staff training
programs to be developed in concert with CDC; (5) periodic inmate counts not
less than four times every 24 hours; (6) periodic searches of the facility and
inmates for contraband; (7) the use of volunteer personnel; (8) telephone usage
by inmates; (9) emergency evacuation plans; (10) quarterly emergency fire
drills; (11) work crew assignments; (12) inmate pay procedures; (13) food
services; (14) visitation policy; (15) household and maintenance services; (16)
inmate medical services; (17) financial management of program funds; and (18)
prerelease program.
ECI's facility has been accredited by the A.C.A.
STAFFING
ECI has hired and maintained a full staff able to provide effective around-the-
clock coverage at the facility in accordance with minimum staffing as mutually
agreed with CDC.
STAFF TRAINING
ECI, in concert with CDC, has developed and implemented a training program for
staff that focuses on the knowledge and skills necessary for effective
management of inmates and supervision of inmate activities. ECI staff who have
daily contact with inmates are required to receive a minimum of 40 hours per
year of inservice training. Support Staff who have no direct interaction with
inmates receive a
minimum of 16 hours per year. Coordination of all training is done with on-site
CDC personnel. Training includes instruction in searches, drug detection,
discretionary decision making and CPR.
MEDICAL SERVICES
ECI, in conjunction with CDC, has developed and implemented written procedures
for routine sick call, and has established written agreements with qualified
medical service providers for 24 hour emergency medical services. CDC pays the
hospital, doctor, dentist, etc., for inmate medical services rendered upon
receipt of an invoice from the medical organization. Inmates with major and/or
special needs are returned to the "HUB" institution for treatment.
LIABILITY INSURANCE
ECI provides $1 million in general and professional liability and property
insurance coverage for the facility and its employees to cover potential
personal injury or property claims.
FOOD SERVICE
Food served will comply with CDC prescribed nutritional standards. Menus are
prepared in advance. Special medical dietary needs of inmates will be provided.
ECI provides for the purchase and storage of all food. ECI staff plans,
prepares, and serves all meals. Food and preparation of meals are handled in
accordance with applicable state and local health codes.
HOUSEHOLD SERVICES
ECI provides suitable living and sleeping areas for facility inmates. Written
orientation policies and procedures are issued to all inmates upon arrival at
the facility. Orientation policies and procedures require CDC written approval
at the Regional level. Inmates are also issued written policies and procedures
for enforced housekeeping, maintenance and regular issue of bed linen and
towels.
FINANCIAL MANAGEMENT OF FUNDS
ECI follows sound financial management practices. ECI's Fiscal Officer is
responsible for administering and maintaining adequate fiscal records to
determine allowable and applicable program costs in accordance with generally
accepted accounting principles. ECI is directly responsible for compliance with
all CDC administrative and fiscal regulations related to the contract. ECI
administers inmate trust and welfare funds in compliance with CDC's DOM.
INTERNAL CONTROL
The Fiscal Officer and ECI are responsible for all contracted funds. Internal
Control procedures have been developed in concert with CDC regulations to reduce
the risk of misappropriation.
CONTRACT AMENDMENTS
Any changes in contract terms will require CDC approval. Any changes that
materially alter the intent of the program or exceed the contract amount will
require a contract amendment that must be approved by the state control agencies
and all parties to the contract.
NONDISCRIMINATION CLAUSE
ECI maintains a policy specifying that during the performance of the contract,
ECI and its subcontractors will not deny the contract's benefits to any person
on the basis of religion, color, ethnic group identification, sex, age, physical
or mental disability, nor will ECI and its subcontractors discriminate
unlawfully against any employee or applicant for employment because of race,
religion, color, national origin, ancestry, physical handicap, mental
disability, medical condition, marital status, age or sex. ECI insures that the
evaluation and treatment of employees and applicants for employment are free of
such discrimination.
ECI also complies with the provisions of the Fair Employment and Housing Act
(Government Code, Section 12900 et. seq.), the regulations promulgated
thereunder (California Administrative Code, Title 2, Section 7285.0 et. seq.),
the provisions of Article 9.5, Chapter 1, Part 1, Division 3, Title 2 of the
Government Code (Government Code Sections 11135-11139.5), and the regulations or
standards adopted by CDC to implement such article.
ECI and its subcontractors will give written notice of their obligations under
this clause to labor organizations, if any, with which they have a collective
bargaining or other agreement, and will include the nondiscrimination and
compliance provisions of this clause in all subcontracts to perform work under
the contract.
PERIODIC REPORTS
ECI submits monthly, quarterly and annual program and cost reports to the State
in accordance with instructions for there preparation provided by CDC.
PROGRAM AUDITS
Program audits are conducted on a quarterly basis by the CCCA staff from Region
and/or Headquarters. Custody/Security, Program Administration, and Physical
Plant audits are conducted to insure compliance with CDC standards. Areas noted
as partial compliance during any audit are corrected within 30-90 days as
specifically
stated in the audit.
Within 10 days of the facility receiving official notice as to the areas of
partial or non-compliance, a plan of correction is submitted to the CCCA
Administrator indicating action to be taken and time frames for full compliance.
The CCCA Administrator reviews the plan of correction and either concurs with
the plan or specifically identifies the corrective actions to be taken and the
time frame for its completion. In case of any discrepancy, the appeal process is
available if filed within 10 days of notice. First level of appeal is to the
CCCA Administrator
and the second level is the Deputy Director of Parole and Community Services
Division. At the end of the time limit, the facility is re-audited.
<PAGE>
STATE OF CALIFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91)
- - APPROVED BY THE CONTRACT NUMBER AM. NO.
ATTORNEY GENERAL R92.401 1
TAXPAYER'S FEDERAL EMPLOYER IDENTIFICATION NUMBER
94-2411045
THIS AGREEMENT, made and entered into this 25TH day of DECEMBER, 1992, in the
State of California, by and between State of California, through its duly
elected or appointed, qualified and acting
- --------------------------------------------------------------------------------
TITLE OF OFFICER ACTING FOR STATE AGENCY
Chief, Contract Services Section Department of Corrections, hereafter called
the State, and
- --------------------------------------------------------------------------------
CONTRACTOR'S NAME
Eclectic Communications, Inc. (Baker CCF), hereafter called the Contractor.
- --------------------------------------------------------------------------------
WITNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed,
does hereby agree to furnish to the State services and materials as follows:
(SET FORTH SERVICE TO BE RENDERED BY CONTRACTOR, AMOUNT TO BE PAID CONTRACTOR,
TIME FOR PERFORMANCE OR COMPLETION, AND ATTACH PLANS AND SPECIFICATIONS, IF
ANY.)
Contract R92.401, dated June 25, 1992, for a community correctional facility and
related services is hereby amended effective January 1, 1993 in order to add
"free inmate beds at no cost to the State, reduce the per diem rate, increase
lease costs and add encumbrances and related changes for the 1993/94 fiscal
year. The following paragraphs are revised/added:
1. Page 2, paragraph 3 of the original contract now reads: The total
amount payable under this contract shall not exceed $4,036,133 in
fiscal year (FY) 1992/93 and $3,973,547 in FY 1993/94. The cumulative
total of this contract through June 30, 1994 shall not exceed Eight
Million Nine Thousand Six Hundred Eighty Dollars ($8,009,680).
CONTINUED ON 5 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER.
================================================================================
The provisions on the reverse side hereof constitute a part of this agreement.
IN WITNESS WHEREOF, this agreement has been executed by the parties hereto, upon
the date first above written.
================================================================================
STATE OF CALIFORNIA CONTRACTOR
================================================================================
AGENCY CONTRACTOR (IF OTHER THAN AN INDIVIDUAL,
STATE WHETHER A CORPORATION, PARTNERSHIP,
ETC.)
Department of Corrections Eclectic Communications, Inc.
- --------------------------------------------------------------------------------
BY (AUTHORIZED SIGNATURE) BY (AUTHORIZED SIGNATURE)
/s/Frank E. Renwick, Chief /s/Arthur McDonald, President
- --------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING PRINTED NAME AND TITLE OF PERSON SIGNING
FRANK E. RENWICK, Chief Arthur McDonald, President
- --------------------------------------------------------------------------------
ADDRESS
TITLE 1823 Knoll Drive
Contract Services Section Ventura, CA 93003 (805) 644-8700
- --------------------------------------------------------------------------------
AMOUNT ENCUMBERED BY THIS PROGRAM/CATEGORY (CODE AND TITLE) FUND TITLE
DOCUMENT(61258) 92/93 SUPPORT PROGRAM 31 GENERAL
$ 3973547.00 93/94 ---------------------------------------------------
- ---------------------------- (OPTIONAL USE)
PRIOR AMOUNT ENCUMBERED FOR 3020/32000
THIS CONTRACT --------------------------------------------------
$ 4097391.00 ITEM CHAPTER STATUTE FISCAL YEAR
587 1992 92/93
- ---------------------------- 5240-001-001(5260) PEND 1993 93/94
TOTAL AMOUNT ENCUMBERED TO ---------------------------------------------------
DATE OBJECT OF EXPENDITURE (CODE AND TITLE)
$8009680.00 418.14
- ---------------------------- ---------------------------------------------------
- --------------------------------------------------------------------------------
I HEREBY CERTIFY UPON MY OWN PERSONAL KNOWLEDGE T.B.A. NO. B.R. NO.
THAT BUDGETED FUNDS ARE AVAILABLE FOR THE PERIOD
AND PURPOSE OF THE EXPENDITURE STATED ABOVE.
- --------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER DATE
/s/ SHIRLEY A. CLARK 6/25/93
Shirley A. Clark
================================================================================
[ ] CONTRACTOR [ ] STATE AGENCY [ ] DEPT OF GEN. SER. [ ] CONTROLLER [ ]
DEPARTMENT OF GENERAL SERVICES
USE ONLY
Department of General Services
APPROVED
Jul. 15, 1993
BY: /s/ GARY NESS
-------------
Gary Ness
Ass't. Chief Counsel
<PAGE>
STATE OF CALIFORNIA AND Contract No. R92.401
ECLECTIC COMMUNICATIONS, INC. 22 Amendment 1
2. Page 1, section 3 (a) of Attachment A of the original contract now
reads: As displayed below, Contractor agrees to provide services for
male participants selected and assigned to the facility. Contractor
further agrees to provide, at no cost to the State, additional free
inmate beds (12 free beds for the period January 1, 1993 through June
30, 1994). These participant days are in addition to the reimbursed
participant days and shall be identified as "free beds" on monthly
invoices submitted by the Contractor. The Contract will be reimbursed
at the specified per diem participant day rates:
- --------------------------------------------------------------------------------
Reimbursed "Free Bed" Total
Participant Days/ Participant Participant
Period Per Diem Rate Days Days
- --------------------------------------------------------------------------------
7/1/92 - 12/31/92 46,000 @ $38.74 -0- 46,000
1/1/93 - 6/30/93 45,250 @ $36.97 2,172 47,422
7/1/93 - 6/30/94 91,250 @ $36.97 4,380 95,630
- --------------------------------------------------------------------------------
3. Section 7 of Attachment A of the original contract is renumbered and
shall read:
8. FACILITY LEASE/USE AND MONTHLY PROGRAM DEVELOPMENT COSTS
Subsection (a) of this section now reads:
(a) The State shall reimburse the Contractor monthly for actual
facility lease/use costs as follows:
$32,314 per month for the period 7/1/92 through 12/31/92
$35,453 per month for the period 1/1/93 through 6/30/94
(Net amounts after Contractor receives rental income for
employee housing).
These fees shall be paid monthly in arrears and shall be reported in
addition to other charges on the Contractor's monthly invoice. In
subsequent months, these fees can be adjusted to reflect: (1) any
adjustments allowed in accordance with the terms contained herein and
in the FMH, and (2) any legislatively approved funding considerations.
4. The following sections are renumbered as follows:
9. EQUIPMENT REQUEST AND REPLACEMENT FUND PROCEDURES
10. INSURANCE REQUIREMENTS AND REIMBURSEMENT RATES
11. FIRE CLEARANCE REPORT
12. PLACEMENT OF PARTICIPANTS
13. INMATE TRUST FUND
14. PRE-RELEASE PLANNING
15. TIME KEEPING SYSTEM
16. MINIMUM REQUIRED STAFFING
<PAGE>
5. Page 4, Section 9 (a) of the Attachment A of the original contract
(renumbered as section 10) now reads: ". . . Reimbursement for general
liability insurance shall not exceed $55,858 effective July 1, 1992."
6. Section 14, Pre-Release Planning, is added to Attachment A of the
original contract and shall read:
The Contract agrees that a pre-release program will be provided to
inmates based on available budgeted resources. This requirement shall
supersede the requirements currently contained in the Statement of Work
and Contractor's Program Statement.
7. Section 16, Minimum Required Staffing, is added to Attachment A of the
original contract and shall read:
The Contractor's minimum required staff and position funding levels for
Fiscal Year 1992/93 are detailed in Exhibits 2 and 3 and Exhibit 4 for
Fiscal Year 1993/94 (attached hereto and incorporated herein).
All other terms and conditions not amended remain in full force and effect.
<PAGE>
STATE OF CALIFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91) CDC ELECTRONIC (1/94)
- - APPROVED BY THE CONTRACT NUMBER AM. NO.
ATTORNEY GENERAL R92.401 2
TAXPAYER'S FEDERAL EMPLOYER IDENTIFICATION NUMBER
94-2411045
THIS AGREEMENT, made and entered into this 27TH day of JUNE, 1994, in the
State of California, by and between State of California, through its duly
elected or appointed, qualified and acting
- --------------------------------------------------------------------------------
TITLE OF OFFICER ACTING FOR STATE AGENCY
Chief, Contract Audit Management Department of Corrections, hereafter called
Branch the State, and
- --------------------------------------------------------------------------------
CONTRACTOR'S NAME
Eclectic Communications, Inc. (Baker CCF), hereafter called the Contractor.
- --------------------------------------------------------------------------------
WITNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed,
does hereby agree to furnish to the State services and materials as follows:
(SET FORTH SERVICE TO BE RENDERED BY CONTRACTOR, AMOUNT TO BE PAID CONTRACTOR,
TIME FOR PERFORMANCE OR COMPLETION, AND ATTACH PLANS AND SPECIFICATIONS, IF
ANY.)
Contract Number R92.401, dated June 25, 1992, which was amended on December 25,
1992 for a community correctional facility and related services is hereby
further amended effective July 1, 1994 in order to revise language, add an
exhibit related to allotment costs and to add encumbrances and the related
changes for the 1994/1995 fiscal year (FY). The following paragraphs are
revised:
1. Page 1, Paragraph 1 of amendment 1 now reads: The total amount payable
under this contract shall not exceed $4,036,133 in FY 1992/93;
$3,973,547 in FY 1993/94; and $3,973,548 in FY 1994/95. The cumulative
total of this contract shall not exceed Eleven Million Nine Hundred
Eighty-Three Thousand, Two Hundred Twenty-Eight Dollars ($11,983,228).
CONTINUED ON 6 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER.
================================================================================
The provisions on the reverse side hereof constitute a part of this agreement.
IN WITNESS WHEREOF, this agreement has been executed by the parties hereto, upon
the date first above written.
================================================================================
STATE OF CALIFORNIA CONTRACTOR
================================================================================
AGENCY CONTRACTOR (IF OTHER THAN AN INDIVIDUAL,
STATE WHETHER A CORPORATION, PARTNERSHIP,
ETC.)
Department of Corrections Eclectic Communications, Inc. (Baker CCF)
- --------------------------------------------------------------------------------
BY (AUTHORIZED SIGNATURE) BY (AUTHORIZED SIGNATURE)
/s/Frank E. Renwick /s/Marvin Wiebe
- --------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING PRINTED NAME AND TITLE OF PERSON SIGNING
FRANK E. RENWICK Marvin Wiebe, VP Finance and Administration
- --------------------------------------------------------------------------------
TITLE ADDRESS
Chief, Contract and Audit 1823 Knoll Drive
Management Branch Ventura, CA 93003 (805) 644-8700
- --------------------------------------------------------------------------------
AMOUNT ENCUMBERED BY THIS PROGRAM/CATEGORY (CODE AND TITLE) FUND TITLE
DOCUMENT SUPPORT PROGRAM 31 GENERAL
$ 3,973,548 ---------------------------------------------------
- ---------------------------- (OPTIONAL USE)
PRIOR AMOUNT ENCUMBERED FOR 3020/32000
THIS CONTRACT --------------------------------------------------
$ 8,009,680 ITEM CHAPTER STATUTE FISCAL YEAR
- ---------------------------- 5240-001-001(5260) 139 1994 94/95
TOTAL AMOUNT ENCUMBERED TO ---------------------------------------------------
DATE OBJECT OF EXPENDITURE (CODE AND TITLE)
$11,983,228 418.14
- ---------------------------- ---------------------------------------------------
- --------------------------------------------------------------------------------
I HEREBY CERTIFY UPON MY OWN PERSONAL KNOWLEDGE T.B.A. NO. B.R. NO.
THAT BUDGETED FUNDS ARE AVAILABLE FOR THE PERIOD
AND PURPOSE OF THE EXPENDITURE STATED ABOVE.
- --------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER DATE
/s/ SHIRLEY A. CLARK 7/26/94
Shirley A. Clark
================================================================================
DEPARTMENT OF GENERAL SERVICES
USE ONLY
APPROVED
Aug. 12, 1994
BY: /s/ J.B. WIHLE
-------------
J.B. Wihle
Ass't. Chief Counsel
<PAGE>
STATE OF CALIFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91) (REVERSE) CDC ELECTRONIC (1/94)
ECLECTIC COMMUNICATIONS, INC. -2- R92.401 (A2)
(BAKER CCF)
REVERSE OF STANDARD AGREEMENT
1. The Contractor agrees to indemnify, defend and save harmless the State,
its officers, agents and employees from any and all claims and losses
accruing or resulting to any and all contractors, subcontractors,
materialmen, laborers and any other person, firm or corporation
furnishing or supplying work services, materials or supplies in
connection with the performance of this contract, and from any and all
claims and losses accruing or resulting to any person, firm or
corporation who may be injured or damaged by the Contractor in the
performance of this contract.
2. The Contractor, and the agents and employees of Contractor, in the
performance of the agreement, shall act in an independent capacity and
not as officers or employees or agents of State of California.
3. The State may terminate this agreement and be relieved of the payment
of any consideration to Contractor should Contractor fail to perform
the covenants herein contained at the time and in the manner herein
provided. In the event of such termination the State may proceed with
the work in any manner deemed proper by the State. The cost to the
State shall be deducted from any sum due the Contractor under this
agreement, and the balance, if any, shall be paid the Contractor upon
demand.
4. Without the written consent of the State, this agreement is not
assignable by Contractor either in whole or in part.
5. Time is of the essence in this agreement.
6. No alteration or variation of the terms of this contract shall be valid
unless made in writing and signed by the parties hereto, and no oral
understanding or agreement not incorporated herein, shall be binding on
any of the parties hereto.
7. The consideration to be paid Contractor, as provided herein, shall be
in compensation for all of Contractor's expenses incurred in the
performance hereof, including travel and per diem, unless otherwise
expressly so provided.
<PAGE>
STATE OF CALIFORNIA AND -26- R92.401 (A2)
ECLECTIC COMMUNICATIONS, INC.
(BAKER CCF)
2. Page 2, Section 2 of Amendment 1, shall now read:
3. PARTICIPANT DAYS AND RATES
(a) As displayed below, Contractor agrees to provide
services for male participants selected and assigned
to the facility. Contractor further agrees to provide
at no cost to the State, additional free inmate beds
(12 free beds effective January 1, 1993 through June
30, 1995). These participant days are in addition to
the reimbursed participant days and shall be
identified as "free beds" on monthly invoices
submitted by the Contractor. The Contractor will be
reimbursed at the specified per diem participant day
rates:
- --------------------------------------------------------------------------------
Reimbursed "Free Bed" Total
Participant Days/ Participant Participant
Period Per Diem Rate Days Days
- --------------------------------------------------------------------------------
7/1/92 - 12/31/92 46,000 @ $38.74 -0- 46,000
1/1/93 - 6/30/93 45,250 @ $36.97 2,172 47,422
7/1/93 - 6/30/94 91,250 @ $36.97 4,380 95,630
7/1/94 - 6/30/95 91,250 @ $36.97 4,380 95,630
- --------------------------------------------------------------------------------
3. Page 2, Section 4 of Amendment 1 is amended as follows:
8. FACILITY LEASE/USE AND MONTHLY PROGRAM DEVELOPMENT COSTS
(a) The State shall reimburse the Contractor monthly for
actual facility lease/use costs at an amount not to
exceed $32,314 per month for the period July 1, 1992
through December 31, 1992 and $35,453 per month
effective January 1, 1993 (net amounts after
Contractor receives rental income for employee
housing). These fees shall be paid monthly in arrears
and shall be reported in addition to other charges on
the Contractor's monthly invoice. In subsequent
months, these fees can be adjusted to reflect: (1)
any adjustments allowed in accordance with the terms
contained herein and in the FMH, and (2)
legislatively approved funding considerations.
<PAGE>
STATE OF CALIFORNIA AND -27- R92.401 (A2)
ECLECTIC COMMUNICATIONS, INC.
(BAKER CCF)
4. Page 3, Section 6 of Amendment 1, shall now read:
10. INSURANCE REQUIREMENTS AND REIMBURSEMENT RATES
(a) State shall reimburse the Contractor in arrears for
the actual cost of general liability insurance only
as specified in the FMH. The reimbursement of
automobile and other insurance costs are included in
the per diem rate. Reimbursement for general
liability insurance shall not exceed $55,858 for FY
1992/93 and FY 1993/94 and $55,860 for FY 1994/95.
Prior to reimbursement, a copy of the bill from the
Contractor's insurance carrier clearly stating the
term, facility location, type of coverage and cost
must be submitted to the CCCA Administrator upon
annual renewal of insurance.
5. Page 3, Section 8 of Amendment 1 is amended as follows:
16. MINIMUM REQUIRED STAFFING
The Contractors minimum required staff and approximate
position funding levels are detailed in Exhibits 2 and 3 for
FY 1992/93; Exhibit 4 for FY 1993/94; and Exhibit 5 for FY
1994/95 (attached hereto and incorporated herein).
6. The following paragraph is added to the Scope of Services, Attachment
A, of the original contract:
17. CONTRACT ALLOTMENT COSTS
The State will reimburse the Contractor for allotment costs
for FY 1994/95 as detailed in Exhibit 6 (attached hereto and
incorporated herein).
The following paragraphs contained in the original contract, Attachment B,
General Terms and Conditions are revised to read:
7. PAGE 1, SECTION 2, AUDITS: The contracting parties shall be subject to
examinations and audits for a period of three years after final payment
under the contract. The examinations and audits shall be confined to
those matters connected with the performance of the contract including,
but not limited to, the costs of administering the contract.
<PAGE>
8. PAGE 2, SECTION 8, NONDISCRIMINATION CLAUSE (STD. 17A): During the
performance of this contract, Contractor and its subcontractors shall
not unlawfully discriminate, harass or allow harassment, against any
employee or applicant for employment because of sex, race, color,
ancestry,religious creed, national origin, physical disability
(including HIV and AIDS), mental disability, medical condition
(cancer), age (over 40), marital status, and denial of family care
leave. Contractors and subcontractors shall insure that the evaluation
and treatment of their employees and applicants for employment are free
from such discrimination and harassment. Contractors and subcontractors
shall comply with the provisions of the Fair Employment and Housing Act
(Government Code Section 12900 et seq.) and the applicable regulations
promulgated thereunder (California Code of Regulations, Title 2,
Section 7285.0 et seq.). The applicable regulations of the Fair
Employment and Housing Commission implementing Government Code Section
12990 (a-f), set forth in Chapter 5 of Division 4 of Title 2 of the
California Code of Regulations are incorporated into this contract by
reference and made a part hereof as set forth in full, Contractor and
its subcontractors shall give written notice of their obligations under
this clause to labor organizations with which they have a collective
bargaining or other agreement.
The Contractor shall include the nondiscrimination and compliance
provisions of this clause in all subcontracts to perform work under the
contract.
The following paragraphs are added as General Terms and Conditions to the
contract:
9. REPORTABLE PAYMENTS IDENTIFICATION AND CLASSIFICATION REQUIREMENTS
Contractor shall comply with State and Federal Reportable Payment
Identification and Classification Requirements by fully completing the
"Vendor Data Record." Contractor understands and agrees that if he/she
does not FULLY COMPLETE THE Vendor Data Record, the State shall reduce
the total contract amount by thirty-one (31) percent for federal backup
withholding and seven (7) percent for State income tax withholding.
10. TAXATION
Pursuant to California Revenue and Taxation Code Section 18806.1, the
Contractor may be subject to a one percent (1%) State income tax
withholding.
11. CORPORATE STATUS CERTIFICATION
If the Contractor is a corporate entity, the person signing on behalf
of the corporation named as Contractor does certify under penalty of
perjury that the corporation is currently in good standing with the
Office of the Secretary of State and is qualified to do business in the
State of California.
12. INDEPENDENT CONTRACTOR CERTIFICATION
All services provided by the Contractor under this contract shall be
performed in an independent Contractor capacity. The Contractor shall
be responsible for withholding all applicable employee taxes.
All other terms and conditions not amended remain in full force and effect.
<PAGE>
STATE OF CALIFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91) CDC ELECTRONIC (1/94)
- - APPROVED BY THE CONTRACT NUMBER AM. NO.
ATTORNEY GENERAL R92.401 3
TAXPAYER'S FEDERAL EMPLOYER IDENTIFICATION NUMBER
94-2411045
THIS AGREEMENT, made and entered into this 1ST day of JULY, 1994, in the
State of California, by and between State of California, through its duly
elected or appointed, qualified and acting
- --------------------------------------------------------------------------------
TITLE OF OFFICER ACTING FOR STATE AGENCY
Chief, Contract Audit Management Department of Corrections, hereafter called
Branch the State, and
- --------------------------------------------------------------------------------
CONTRACTOR'S NAME
Eclectic Communications, Inc. (Baker CCF), hereafter called the Contractor.
- --------------------------------------------------------------------------------
WITNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed,
does hereby agree to furnish to the State services and materials as follows:
(SET FORTH SERVICE TO BE RENDERED BY CONTRACTOR, AMOUNT TO BE PAID CONTRACTOR,
TIME FOR PERFORMANCE OR COMPLETION, AND ATTACH PLANS AND SPECIFICATIONS, IF
ANY.)
Contract Number R92.401, dated June 25, 1992, which was amended on December 25,
1992 and June 27, 1994 for a community correctional facility and related
services is hereby further amended effective July 1, 1994 in order to revise and
add various contract documents, allow cost adjustments for fiscal year (FY)
1994/95, allow for reimbursement for renovation costs for FYs 1994/95 and
1995/96, and to add encumbrances and the related changes for the 1995/96 FY. The
following paragraphs are revised:
1. The following documents referenced on Page 2, Subparagraphs 1(c) and
1(d) of the original contract are revised: Contractor's Program
Statement (Revised Attachment C; attached hereto and incorporated
herein) and the State's Statement of Work for Private Community
Correctional Facilities dated july 1994 (by reference is a part of the
contract).
CONTINUED ON 33 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER.
================================================================================
The provisions on the reverse side hereof constitute a part of this agreement.
IN WITNESS WHEREOF, this agreement has been executed by the parties hereto, upon
the date first above written.
================================================================================
STATE OF CALIFORNIA CONTRACTOR
================================================================================
AGENCY CONTRACTOR (IF OTHER THAN AN INDIVIDUAL,
STATE WHETHER A CORPORATION, PARTNERSHIP,
ETC.)
Department of Corrections Eclectic Communications, Inc. (Baker CCF)
- --------------------------------------------------------------------------------
BY (AUTHORIZED SIGNATURE) BY (AUTHORIZED SIGNATURE)
/s/Frank E. Renwick /s/Marvin Wiebe
- --------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING PRINTED NAME AND TITLE OF PERSON SIGNING
FRANK E. RENWICK Marvin Wiebe, VP Finance and Administration
- --------------------------------------------------------------------------------
TITLE ADDRESS
Chief, Contract and Audit 1823 Knoll Drive
Management Branch Ventura, CA 93003 (805) 644-8700
- --------------------------------------------------------------------------------
AMOUNT ENCUMBERED BY THIS PROGRAM/CATEGORY (CODE AND TITLE) FUND TITLE
DOCUMENT SUPPORT PROGRAM 31 GENERAL
60,107 94/95
$ 4,063,207 95/96 ---------------------------------------------------
- ---------------------------- (OPTIONAL USE)
PRIOR AMOUNT ENCUMBERED FOR 3020/32000
THIS CONTRACT --------------------------------------------------
$ 11,983,228 ITEM CHAPTER STATUTE FISCAL YEAR
- ---------------------------- 5420-001-001(5260) 139 1994 94/95
TOTAL AMOUNT ENCUMBERED TO ---------------------------------------------------
DATE OBJECT OF EXPENDITURE (CODE AND TITLE)
$ 12,043,335 418.14
- ---------------------------- ---------------------------------------------------
- --------------------------------------------------------------------------------
I HEREBY CERTIFY UPON MY OWN PERSONAL KNOWLEDGE T.B.A. NO. B.R. NO.
THAT BUDGETED FUNDS ARE AVAILABLE FOR THE PERIOD
AND PURPOSE OF THE EXPENDITURE STATED ABOVE.
- --------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER DATE
/s/ SHIRLEY A. CLARK 6/1/95
Shirley A. Clark
================================================================================
DEPARTMENT OF GENERAL SERVICES
USE ONLY
APPROVED
Jun. 16, 1995
BY: /s/ J.B. WIHLE
-------------
J.B. Wihle
Ass't. Chief Counsel
<PAGE>
STATE OF CALIFORNIA AND -2- R92.401(A3)
ECLECTIC COMMUNICATIONS, INC.
(BAKER CCF)
2. Page 1, Paragraph 1 of Amendment 2 now reads: The total amount payable
under this contract shall not exceed $4,036,133 in FY 1992/93;
$3,973,547 in FY 1993/94; $4,033,655 in FY 1994/95; and $4,043,207 in
FY 1995/96. The cumulative total of this contract shall not exceed
Sixteen Million, Eighty-Six Thousand, Five Hundred Forty-Two Dollars
($16,086,542).
3. Page 3, Paragraph 2 of Amendment 2, the chart displaying participant
days and per diem rates is revised:
- --------------------------------------------------------------------------------
Reimbursed "Free Bed" Total
Participant Days/ Participant Participant
Period Per Diem Rate Days Days
- --------------------------------------------------------------------------------
7/1/92 - 12/31/92 46,000 @ $38.74 -0- 46,000
1/1/93 - 6/30/93 45,250 @ $36.97 2,172 47,422
7/1/93 - 6/30/94 91,250 @ $36.97 4,380 95,630
7/1/94 - 6/30/95 91,250 @ $37.263 4,380 95,630
7/1/95 - 6/30/96 95,892 @ $35.54 0 95,892
- --------------------------------------------------------------------------------
4. Page 3, Paragraph 3 of Amendment 2, Subparagraph 8(a), shall now read:
Effective July 1, 1994, CDC shall reimburse Contractor monthly in
arrears for actual base facility lease costs not to exceed $438,196 per
fiscal year (net amounts after Contractor receives rental income for
employee housing). Contractor shall submit, with their monthly invoice,
a canceled check for actual monthly lease costs incurred and paid. No
addendums or side letters to the facility lease will be recognized by
CDC that does not have prior written approval by the CCCA
Administrator. In subsequent months, these fees can be adjusted to
reflect: 1) any adjustments allowed in accordance with the terms
contained herein and in the FMH, and 2) legislatively mandated approved
funding considerations.
5. Page 4, Paragraph 4 of Amendment 2: Reimbursement for general liability
insurance shall not exceed $77,126 per fiscal year effective July 1,
1994.
6. Page 4, Paragraph 5 of Amendment 2: The Contractors minimum required
staff and approximate position funding levels are detailed in the
revised Exhibit 5 for FY 1994/95 and Exhibit 10 for FY 1995/96
(attached hereto and incorporated herein).
<PAGE>
STATE OF CALIFORNIA AND -31- R92.401(A3)
ECLECTIC COMMUNICATIONS, INC.
(BAKER CCF)
7. Page 4, Paragraph 6 of Amendment 2: The State will reimburse the
Contractor for allotment costs as detailed int he revised Exhibit 6 FY
1994/95 and Exhibit 9 for FY 1995/96 (attached hereto and incorporated
herein).
The following paragraphs are added as Scope of Services provisions to the
contract:
8. ARMORY RENOVATION
The State will reimburse the Contractor for one-time renovation costs
of $4,750 in FY 1994/95 for the renovation of the armory. No renovation
work shall commence until specifications and bids have been received
and approved in writing by the CCCA Administrator. All renovation and
equipment costs must comply with the competitive three bid process.
Contractor shall submit actual receipts with invoices for
reimbursement.
9. HOLDING CELLS CONSTRUCTION
Contractor shall construct three holding cells for the 262 bed
population for a total cost not to exceed $33,579 in FY 1995/96. No
construction shall commence until specifications and bids have been
received and approved in writing by the CCA Administrator. All
construction costs must comply with the competitive three bid process.
The State shall reimburse the Contractor for actual costs upon receipt
of invoices. Actual receipts must be submitted with invoices for
reimbursement.
10. POST ASSIGNMENTS
The Contractor agrees to schedule staff in accordance with post
assignment schedule summaries and details and specified in Exhibits 7
and 8(a) through 8(d) for FY 1994/95 and Exhibits 11 and 12(a) through
12(d) for FY 1995/96, which are attached hereto and incorporated
herein.
<PAGE>
STATE OF CALIFORNIA AND -32- R92.401(A3)
ECLECTIC COMMUNICATIONS, INC.
(BAKER CCF)
11. EMERGENCY MEDICAL CARE TRANSPORTATION/SUPERVISION
The State shall reimburse the Contractor for necessary overtime related
transportation and supervision of inmates for emergency medical care.
Reimbursement will not be made for straight time staffing costs (which
are included in the monthly per diem payments) unless back-up staff are
called in to back-fill open posts caused by the
transportation/supervision of inmates for emergency medical care.
Invoices must include the following:
o Date of emergency medical care service
o Date of approval by HUB institution
o Inmate name and CDC number
o Type of emergency medical care
o Signature of CDC's approving agent
o Regular work hours of staff person
o Overtime hours related to emergency medical care, inmate supervision
and/or transportation
12. EMERGENCY RELEASE FUNDS
Upon release from prison, inmates are entitled to funds to assist with
necessary transportation costs. In the event that release funds are not
received prior to the release date of an inmate, the Contractor shall
issue a check to the inmate, as authorized by the Parole Agent, to
cover the release funds. The State shall reimburse the Contractor for
release funds issued on an emergency basis. Invoices must include a
copy of the Release Statement (CDC Form 102), signed by the Parole
Agent authorizing the transaction and the inmate.
All other terms and conditions not amended remain in full force and effect.
<PAGE>
Revised Attachment C
Contract No. R92.401 (A3)
(1 of 16 pages)
Eclectic Communications, Inc.
(Baker CCF)
Contractor's Program Statement
<PAGE>
COMMUNITY CORRECTIONAL FACILITY
PROGRAM STATEMENT
ECLECTIC COMMUNICATIONS, INC. - BAKER FACILITY
ORGANIZATION
Eclectic Communications, Inc. (E.C.I.) will provide, ready for occupancy, a
facility suitable for twenty-four hour secure housing for two hundred sixty-two
male adult offenders. The security of the facility will be the responsibility of
the on-site CDC staff who will monitor E.C.I. staff in accordance with CDC
regulations and policies in the day to day operation of the facility. All
significant security concerns will be reported to the CDC lieutenant or CDC
representative within twenty-four hours. Legal jurisdiction of the inmates at
Baker CCF will remain with the Director of CDC.
Clear lines of communications and authority between CDC on-site staff and with
E.C.I. have been established.
E.C.I. will provide CDC with the facility organizational chart, job descriptions
and post orders for custody staff. The Post Orders are in compliance with DOM
Section 51040.1 through 51040.9.
ADMINISTRATION AND MANAGEMENT
E.C.I. has a Conditional Use Permit from San Bernardino County which documents
current compliance with applicable zoning and other ordinances, laws, rules and
regulations concerning building, sanitation, health, safety and fire codes.
E.C.I. has an established and active Community Advisory Board who are elected
officials of the district. We also maintain an active, positive relationship
with the media both locally and in the county.
E.C.I. provides one million dollars in general and professional liability and
property insurance coverage for the facility and its employees to cover
potential personal injury or property claims.
E.C.I. has a current Policy and Procedures Manual which provides clear and
concise details for the daily operation of the C.C.F. and its programs. This
manual has been made available to and approved by the on- site CDC staff.
E.C.I. maintains a policy specifying that during the performance of the contract
E.C.I. and its subcontractors will not deny the contract's benefits to any
person on the basis of religion, color, ethnic group identification, sex, age,
physical or mental disability, nor will E.C.I. or its subcontractors
discriminate unlawfully against any employee or applicant for employment because
of race, religion, color, national origin, ancestry, physical handicap, mental
disability, medical condition, marital status, age or sex. E.C.I. insures that
the evaluation and treatment of employees and applicants for employment are free
of such discrimination.
E.C.I. also complies with the provisions of the Fair Employment and Housing Act
government code, Section 12900ET.SCQ. (The regulations promulgated thereunder
California Administrative Code, Title II, Section 7285.0ET. SEG), the provisions
of Article 9.5, Chapter 1, Part 1, Division 3, Title II of the Government
Page - 1
Code (Government Code Sections 1135-1139.5) and the regulations or standards
adopted by CDC to implement such article. E.C.I. and its subcontractors will
give written notice of their obligations under this clause to labor
organizations, if any, with which they have collective bargaining or other
agreement, and will include the non-discrimination and compliance provisions of
this clause and all subcontracts to perform work under the contract. E.C.I. has
a written policy to guard against conflict of interest (Employee Handbook) which
is in compliance with the Fair Political Practices Act and conditions stipulated
in the Financial Management Handbook (FMH). This policy states specifically that
no employee shall use his or her official position to secure privileges or
advantages.
PERSONNEL
E.C.I. will recruit, hire, train and maintain able bodied nonpeace officer staff
to provide twenty-four hour custody coverage of the C.C.F. in accordance with
the staffing requirements specified in the contract.
All personnel selected by E.C.I. to work in the facility will be subject to a
CDC prescribed background investigation prior to actual employment. CDC may
provide provisional clearance for hiring employees pending final approval once
background clearances are completed.
E.C.I. has written personnel procedures which provide for an employee with
grievance and appeal process. (Employee Handbook) E.C.I. has submitted to CDC a
written job description for all positions. Each job description included job
title, responsibility of the position and required minimum experience and
education. In addition, E.C.I. will submit current Post Assignment Schedules to
local CDC staff.
E.C.I. has a written policy in accordance with DOM prohibiting fraternization
between E.C.I. staff and inmates in the facility. It also requires that each
employee, agent and subcontractor shall be subject to prohibitions in respect to
all inmates assigned, held in custody or former inmates and the inmate's family
and friends.
E.C.I. will not hire or subcontract to any ex-felons on active parole or
probation or if they are required to register as sex offenders pursuant to Penal
Code Section 290 or if such offender has a violent felony as defined in Section
667.5 of the Penal Code. Ex-felons will not be in a position that provides
direct custody supervision of inmates without prior approval from CDC. It is the
policy of E.C.I. to obtain written approval to employ any ex-offender from the
Director of the California Department of Corrections. If such offender is
assigned to duties that involve policy decision making or accounting, E.C.I.
will fully bond this individual to cover any potential loss to the state or
E.C.I.
E.C.I. has a written policy and a training program which prohibits any form of
sexual harassment in accordance with local, state and federal guidelines.
E.C.I. provides inmates and employees a drug free work place.
TRAINING
E.C.I. in conjunction with CDC has developed and implemented a training program
for staff which clearly defines the knowledge and skills necessary for effective
management of inmates and the supervision of their
Page - 2
activities specific to a CCF. Custody staff, whether permanent or temporary
shall be familiar with custody operations specified in DOM Sections 52010
through 52110.
Custody and operational areas such as search and seizure, arrest procedures,
disposition of contraband, drug detection, drug testing, discretionary decision
making, Cardiopulmonary Resuscitation (CPR), inmate count, emergency procedures,
supervision of inmates, inmate appeals (CDC Form 602), inmate property,
preparing disciplinary reports (CDC 115) inmate mail, inmate use of the
telephone, daily activity report (DAR), control of dangerous and toxic
substances, tool control, and report writing shall be included in the custody
staff training requirements.
E.C.I. maintains records and individual staff training files that document
compliance with these training requirements. E.C.I. will insure that custody
personnel read and sign the CCF's post orders (DOM Section 51040.6.1). E.C.I.
will ensure that CCF employees, including temporary employees complete the 32
hour CDC entry level orientation and training courses within the first year of
employment. All CCF employees will be required to complete 40 hours of
in-service training annually including but not limited to sexual harassment,
inmate and staff relations and first aid.
ARREST, SEARCH AND SEIZURE
E.C.I. staff may conduct searches of the facility at any time. Any contraband
discovered shall be given to CDC personnel assigned to the facility for
administrative disposition and/or to local law enforcement for possible criminal
prosecution of the inmate or inmates.
Search and seizure conducted by E.C.I. will comply with the requirements of CCR
Sections 3006 and 3287 and DOM Sections 52050.18 through 52050.18.3.
E.C.I. staff will administer urine testing to the inmate in compliance with CCR
Section 3290.
CLASSIFICATION
E.C.I. understands that classification is a continual diagnostic and
prescriptive process involving a systematic study of each inmate's needs. E.C.I.
has established an operational plan in accordance with DOM and the CCF Screening
Handbook which shall ensure a process for review of each inmates needs upon
arrival at the CCF and as necessary thereafter. E.C.I. staff and CDC staff shall
participate in the classification process in accordance with DOM Section 62010.
This process shall apply uniformly: each inmate shall be individually classified
and assigned a specific scheduled activity in the CCF.
Each classification determination which adversely affects the inmate's length of
confinement and/or program participation shall be made by the classification
committee. Such classification determinations include establishing and changing
restrictions and supervision for control purposes, or to ensure the security of
the facility and safety of all persons. The decision of the classification
committee shall be documented in the inmate's file. Copies of any pertinent
documents will be given to the inmate.
DISCIPLINE
Page - 3
E.C.I. has developed an inmate disciplinary operational plan which meets the
requirements of CDC's policy, due process, and specified time limits. E.C.I.
staff shall initiate and participate in informal and formal disciplinary actions
within the context of progressive disciplinary practices. E.C.I. will be the
first level of review regarding informal action. E.C.I. staff will have the
responsibility of documenting negative behavior and writing the initial charges
in accordance with CDC's policy and regulations. CDC staff will determine
disciplinary action as administrative or serious. CDC staff has the final
authority in all formal disciplinary actions.
APPEALS
E.C.I. will ensure inmate appeal forms (CDC Form 602) are readily available to
all inmates. E.C.I. staff will provide the assistance necessary to ensure that
inmates who have difficulty communicating in writing English have access to the
appeal process. E.C.I. will respond to appeals at the informal level if the
issue is contract-related. The Parole Agent II and/or Parole Agent III shall
review or assign to appropriate E.C.I. staff inmate appeals at the first formal
level. No reprisal shall be taken against any inmate for filing an appeal.
E.C.I. will ensure that all the appeals are filed in accordance with CCF
Sections 3084 through 3084.7. E.C.I. and CDC shall provide ongoing training to
staff to assure adherence and compliance with these policies.
RECORDS
The Parole Agent II assigned to E.C.I. will maintain a local case file for each
inmate assigned to the CCF. Each case file shall include appropriate material
from the inmate's central file necessary to the CCF program as provided by CDC.
All local case files shall be secured in a locked file cabinet marked
"Authorized Personnel". Only authorized CDC and contractor staff shall have
access to these case files. E.C.I. will submit Daily Movement Sheets to the CCCA
Administrator including information on CDC inmates received and discharged.
E.C.I. has a written policy and procedures regarding the confidentiality of
individual case records which addresses client access, staff access and release
of information.
FACILITY
E.C.I. will provide, ready for occupancy, a facility suitable for twenty-four
hour secure housing for 262 adult offenders. The facility is equipped to monitor
within as well as detect any unauthorized ingress/egress and has a fire
clearance approved by the State Fire Marshal pursuant to Section 13143.6 of the
Health and Safety Code. The Facility is configured to supply sufficient space
and accommodations for living and sleeping areas, indoor and outdoor recreation,
visiting, administrative office for E.C.I. staff and on-site CDC personnel,
centralized food and household services, and secure storage of residents'
personal property, and has adequate parking space for staff and visitors.
E.C.I. provides suitable living and sleeping areas for the facility inmates.
Written orientation policies and procedures are issued to all inmates upon
arrival at the facility. Inmates are also issued written policies and procedures
for enforced housekeeping, maintenance and regular issue of bed linen and
towels. E.C.I. facility is inspected for sanitation and health codes of the
applicable government jurisdiction on an annual basis. The reports of the
inspection are kept on file.
Page - 4
E.C.I. has a written policy and procedure governing the use of telephones.
Inmates are permitted reasonable access to telephones for personal and
program-related purposes. E.C.I. has adequate telephone services available to
conduct business and respond to emergencies. E.C.I. ensures that staff are
trained in the using of telephone to respond to an emergency.
GENERAL ARMORY OPERATIONS
E.C.I. has provided adequate space in a designated area of the facility for
storage of firearms, chemical agents and less than lethal weapons. The armory is
the sole responsibility of CDC and is not accessible by E.C.I. staff.
SAFETY AND EMERGENCY PROCEDURES
E.C.I. has a written emergency and evacuation plan and procedures in accordance
with DOM Section 55010 (restricted volume). These procedure includes the
following: evacuation plan; how the facility will respond to fire, natural
disasters such as earthquakes, disturbances such as inmate riots, strikes and
lock downs; attacks, explosions; or any incident that threatens the safety and
security of the CCF. Copies of this plan have been submitted to local CDC
personnel. E.C.I. has developed a written disturbance control plan with the
assistance of the CDC Lieutenant and mutual aid agreements that have been
established with local and state law enforcement agencies.
The emergency evacuation plan and the disturbance control plan shall not be made
available to inmates. E.C.I. shall ensure that all CCF staff comply with this
restriction.
E.C.I. has written the policies and procedures which specify its fire prevention
regulations and practices to ensure the safety of staff, inmates and visitors.
This plan includes provision for adequate fire protection service, emergency
evacuation plans posted throughout the facility, a procedure for fire
inspections and equipment testing at least on a quarterly basis, an annual
inspection and fire clearance by local and state officials, and the availability
of fire protection equipment at appropriate locations throughout the facility.
The facility is equipped with automatic smoke detecting devices which are
required by the State Fire Marshal. These devices are tested in accordance with
the manufacturer's requirements and documentation is kept on file.
E.C.I. also has written procedures in accordance with DOM Section 52030 for the
storage, accountability, handling and dispensing of all volatile, toxic or
hazardous materials and substances.
E.C.I. will ensure that working and living areas for inmates and staff are free
from unsafe, unhealthy exposure to toxic or hazardous materials that could lead
to personal injury or illness. E.C.I. ensures that visitors, especially children
are not exposed to any materials considered volatile, toxic or hazardous.
FOOD SERVICES
E.C.I. provides food service at Baker CCF that meets CDC's nutritional standards
consistent with DOM Sections 54080. E.C.I. staff have developed and follow
approved menus which are submitted to a licensed dietitian for approval on an
annual basis. E.C.I. staff taste test all foods prior to serving to inmates.
Page - 5
The menus as mentioned in the above paragraph comply with nutritional standards
and are approved by a licensed dietitian. All menus are prepared in advance
indicating what substitutions shall be used in the event there is spoilage or
shortage. E.C.I. does provide for special dietary needs of inmates. The Food
Administrator is responsible for food purchases, meal planning and serving, and
sanitation of culinary areas that meet state and local health department
requirements.
E.C.I. retains a refrigerated sample of meals served for seventy-two hours to
determine what food items may be responsible in the event of alleged food
poisoning or infection. In case or food poisoning or infection these samples are
made available to medical staff, state or local health officials, for analysis.
E.C.I. complies with local and state sanitation and health codes and is
inspected annually. All culinary personnel are inspected for clean hands and
fingernails, wear hairnets or caps and wear clean washable garments. They are in
good health and have been approved by the Medical Department for culinary work.
All staff have local food handlers certification. All food is stored properly at
the completion of each meal and appropriate space and equipment is available for
the proper storage and refrigeration of food supplies.
The kitchen and dining room is ventilated, properly furnished and clean.
GENERAL
INMATE CLOTHING
CDC provides the inmate clothing similar to the CDC institution clothing. The
clothing is purchased from Prison Industry Authority. Also E.C.I. has developed
a written plan for facility laundry services to be provided by an inmate work
crew.
FINANCIAL MANAGEMENT OF FUNDS
E.C.I. follows sound financial management practices. E.C.I.'s financial officer
is responsible for administering and maintaining adequate fiscal records to
determine allowable and applicable program costs in accordance with the
generally accepted accounting principles. E.C.I. is directly responsible for
compliance with all CDC administrative and fiscal regulations related to the
contract. E.C.I. administers inmate trust and welfare funds in compliance with
CDC DOM and the Financial Management Handbook.
INTERNAL CONTROL
E.C.I.'s Fiscal Officer is responsible for all contracted funds. Internal
control procedures have been developed in concert with CDC regulations to reduce
the risk of misappropriation. E.C.I. will submit various monthly, quarterly and
annual program costs and reports to the CCCA Administrator in accordance with
the Financial Management Handbook.
SMOKING POLICY
E.C.I. has developed an outdoor area designated for smoking. Smoking shall not
be permitted inside the housing areas.
OUTGOING MAIL
Page - 6
All outgoing articles of correspondence from E.C.I. sent by contract staff, CDC
staff or an inmate shall be clearly labeled or stamped with the words COMMUNITY
CORRECTIONAL FACILITY.
PROGRAM OPERATIONS
GENERAL
E.C.I. is responsible for the daily operation of Baker CCF in accordance with
the DOM and any written communications from CCCA Administrator following
discussion by both parties.
PRE-RELEASE PLANNING
E.C.I. provides pre-release program services subject to available budgeted
resources. E.C.I. ensures that program includes the lessons in employability
skills, communication skills, money management, community resources, family and
social interactions and parole resources. E.C.I. pre-release curriculum meets
the minimum content noted in DOM Section 53090.6. Instructional staff and
materials for pre-release program ensure the inmate's familiarization with
service agencies such as the Department of Rehabilitation, Social Security
Administration, Department of Motor Vehicles, and the Employment Development
Department. There is adequate space, seating, equipment and supplies.
DRUG ABUSE/MRT PROGRAM
E.C.I. has a substance abuse course entitled Moral Reconation Therapy or MRT.
MRT is part of the Pre- Release Program and participation is mandatory if
selected. Selection into the program is made during the Intake Counseling
Process when inmates first arrive at Baker CCF.
All materials used in MRT are at no cost to inmates. The Case Manager III is
responsible for coordinating the program.
WORK INCENTIVE
E.C.I. has established and maintains Inmate Work Training Incentive Program
(IWTIP) positions for work assignments either within the facility or outside the
facility in accordance with the Department's Classification Manual, DOM and any
revisions thereto. E.C.I. and CDC on-site staff through classification assign
each inmate who qualifies to participate in the IWTIP to such positions. Inmate
Work Incentive Program positions may be paid from the contractor's Trust Fund
account.
Work assignments outside the facility are directed toward providing relevant
work experience. They also provide supervised work crew assignments to benefit
various local government agencies provided that such assignments do not displace
local government employees. E.C.I. records all the hours spent by each inmate on
assignments and reports the total hours for all inmates on each quarterly cost
report as required by the FMH. E.C.I. also submits Inmate Work Training
Assignments Monthly Report (CDC Form 1169) by the fifth working day of each
month to CDC Institutions Division.
E.C.I. has established an Inmate Trust Fund account solely for the acceptance of
reimbursements from the State to pay inmates for completed work/training
assignments and for disbursing to inmates credits for such
Page - 7
payments earned. Internal controls over the Inmate Trust Fund have been
established by E.C.I. subject to approval by CDC in accordance with the FMH.
COMMUNITY SERVICE
One of E.C.I.'s main objectives is to increase the rate of the inmates'
successful reintegration into society. To achieve this objective E.C.I. actively
solicits community service projects for inmate participation. Baker CCF projects
include the following:
Local Volunteer Fire Department Crew
Community Park Crew
School District Crew
University of California at Riverside Crew
Local Housing Crew
All outside community service crews operate in accordance with DOM and an
approved Memorandum of Understanding. All community service projects have CDC
approval and are supervised by properly trained staff. It is hoped that the
personal goal of inmates performing community service assignments is to learn
skills which may be utilized upon their return to society and to increase their
chance of successful reintegration as law abiding citizens.
EDUCATIONAL PROGRAMS
E.C.I. has an educational program to provide inmates with occupational and
social skills to help them function better in the CCF and upon their return to
society. These programs are consistent in quality and content and in compliance
with DOM Section 53090.
The Baker CCF educational programs are approved by the local school and college
districts and use the competency-based adult education curriculum. This
curriculum is designed to provide individually assessed academic skills levels
to prepare inmates for the General Education Development (GED) test, and to
strengthen and enhance their academic achievement levels.
E.C.I. insures that inmates achieving below a 6.0 grade level or with limited
English proficiency are assigned to adult basic education or English as a second
language in accordance with available resources. E.C.I. classrooms are properly
lighted, well ventilated and smoking is not permitted in the classrooms.
Educational programs are conducted Monday through Friday year round excluding
State and national holidays for a minimum of six hours a day. In addition,
E.C.I. provides three nights a week of basic education during off duty hours for
those inmates who are involved in other programs.
RELIGIOUS PROGRAMS
Page - 8
E.C.I. allows and facilitates religious programs using community volunteer
resources consistent with the safety and security needs of Baker CCF. E.C.I.
provides religious services on weekends and during the week.
Inmates are not assigned as ministers or religious counselors on a full-time
basis, however do volunteer to help when approved by the minister.
LIBRARY SERVICES
E.C.I. maintains an inmate library and it includes a logical organization of
materials to satisfy the needs of the user; information services to locate facts
as needed; promotions of library materials through publicity, a list of books,
special programs and other appropriate items in a congenial library atmosphere.
Library services at Baker CCF are certified by Barstow Community College.
Library hours are scheduled at least a minimum of thirty hours per week. Law
library access shall be provided through a CDC Hub Institution. Inmate
requesting use of law library material shall be transported to the Hub
institution. Once an inmate has completed use of the institution's law library
resources, he shall be returned to the CCF.
VISITING
E.C.I. believes that visiting should be encouraged as a means of developing and
maintaining healthy family and community relationships. Therefore visiting is
allowed a minimum twelve hours of contact visiting per week. These procedures
are consistent with DOM Section 54020 and CCR Section 3170. The degree of
visiting is consistent with the overall security requirements of the facility.
Visit request are subject to denial or restrictions by CDC staff for violations
of the conditions under which such activities are permitted.
Appropriate space, including parking is provided to accommodate visitors and is
accessible to persons with disabilities. A separate area is provided for law
enforcement/attorney/Administrative Hearing interviews if needed during the
scheduled visiting periods.
The privacy of inmates is not imposed upon except as necessary for
identification of persons to maintain order, acceptable conduct and to prevent
the introduction of items, commodities or substances which inmates are not
permitted to possess.
Limitation on length and frequency of visits and the number of persons to visit
inmates at the same time shall be imposed to avoid overcrowding and/or ensure
equal allocation of visiting resources. Visiting will not conflict or supersede
required inmate participation in CCF activities such as full-time work/training
assignments. All visitors shall be notified upon entering the grounds that their
person, vehicle and articles of property in their possession are subject to
search to the degree necessary to ensure security and to prevent the
introduction of contraband. This policy is consistent with DOM Section 54020.
CANTEEN
E.C.I. has established an inmate canteen program and operating procedures in
compliance with DOM Section 54070 and Appendix J in the Financial Management
Handbook. E.C.I. has developed the canteen items and the price list that ensure
a reasonably sufficient inventory of items to meet the needs of the inmate
population. The price list is current and posted in the Inmate Canteen, the
Library and each dormitory.
Page - 9
Copies are made available to each inmate. Canteen hours are during the
nonworking hours and are twice a week on Saturday and Sunday. E.C.I. has an
established Inmate Welfare Fund as specified in the Financial Management
Handbook. Any profit derived by E.C.I. from the inmate canteen program is
deposited in the Inmate Welfare Fund. IWF Statement of Operations is posted on a
quarterly basis.
RECREATION PROGRAMS
E.C.I. has an active recreation department with activities that include a
variety of games, sports, entertainment, physical development and audio/visual
programs. Participation is voluntary and during the inmate's leisure time.
Special time is also scheduled for those inmates who work their regular hours.
E.C.I. recognizes that recreation is an integral part of the correctional
program and does everything to maintain and promote a safe, secure and healthful
conditions to promote physical fitness and relaxation.
HOBBYCRAFT
E.C.I. has a Hobby Shop where inmates can make crafts such as cigarette lighter
holders, clocks and picture frames for their personal use or for sale to the
public. Participation is voluntary and during the inmate's leisure time. Use of
the hobby shop is at no cost to the inmates and on a first come first serve
basis. Most materials used are paid for by the inmates but all Hobby Shop
equipment used is at no cost. The Hobby Shop Coordinator is responsible for a
safe, secure and healthful condition to promote a stress free environment.
MEDICAL SERVICES
E.C.I., in conjunction with the designated HUB Institution has developed and
implemented written procedures for routine sick call and emergency medical
and/or dental services consistent with CDC Instructional Memorandum 91/3, issued
December 19, 1991. E.C.I. provides nursing services to the inmate population,
which includes triage of inmate health care complaints and making appropriate
referrals to physicians. It provides basic treatments for injuries and illnesses
including dressings, bandages, hot and cold therapy and dispensing medications.
The on-site nurse is the liaison between the Hub Facility Chief Medical Officer
and the facility. She maintains accurate and confidential health records and
provides administrative services such as making appointments for inmates and
processing general paperwork required to operate inmate health care and
outpatient services.
QUARTERLY INSPECTIONS AND ANNUAL PROGRAM AUDITS
The CCF's security operations and management will be inspected quarterly by the
assigned CDC Parole Agent III or designee. The quarterly inspections will enable
the facility management and assigned CDC staff to address and resolve daily
operational problems as they arise.
The CCF shall be audited annually by CCCA's Audit Compliance Staff. Within 30
days of receiving the annual CCF audit report the contractor shall submit to
CCCA a corrective plan in response to the findings and recommendations. This
plan must include time frames for complying with audit findings and
recommendations.
Page - 10
Upon receiving the CCF corrective action plan, CCCA will review the action to be
taken. The CCCA Administrator may concur with the corrective action plan
proposed or refer all, or part of the plan to CDC assigned Parole Agent III for
follow-up and resolution. If the CCF remains out of compliance with CDC
standards and contract requirements, a one percent penalty may be imposed
against the facility's monthly invoice and doubled for each succeeding month of
continued noncompliance.
In cases where contractor disagrees with CDC audit findings, the appeal process
is available. An appeal must be filed by the contractor within ten days of
receiving CCCA's written notice of noncompliance. The first level of appeal is
to CCCA Administrator, the second level of appeal is to the Deputy Director,
Parole and Community Services Division , and the third level of appeal is to the
Director of Corrections. The ruling of the Director is final, however, the
contractor may seek remedy outside the Department if unsatisfied with the ruling
of the Director.
An uncorrected breach of security, health or safety standards can result in
immediate cancellation of the contract following discussion by both parties.
Page - 11
STATE OF CALIFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91) CDC ELECTRONIC (1/94)
- - APPROVED BY THE CONTRACT NUMBER AM. NO.
ATTORNEY GENERAL R92.401 4
TAXPAYER'S FEDERAL EMPLOYER IDENTIFICATION NUMBER
94-2411045
THIS AGREEMENT, made and entered into this 1ST day of DECEMBER, 1995, in the
State of California, by and between State of California, through its duly
elected or appointed, qualified and acting
- --------------------------------------------------------------------------------
TITLE OF OFFICER ACTING FOR STATE AGENCY
Chief, Service Contracts Section Department of Corrections, hereafter called
the State, and
- --------------------------------------------------------------------------------
CONTRACTOR'S NAME
Cornell Corrections of California, Inc. (Baker CCF), hereafter called the
Contractor.
- --------------------------------------------------------------------------------
WITNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed,
does hereby agree to furnish to the State services and materials as follows:
(SET FORTH SERVICE TO BE RENDERED BY CONTRACTOR, AMOUNT TO BE PAID CONTRACTOR,
TIME FOR PERFORMANCE OR COMPLETION, AND ATTACH PLANS AND SPECIFICATIONS, IF
ANY.)
Contract R92.401, dated June 25, 1992 for a Community Correctional Facility,
which was amended on December 25, 1992, June 27, 1994; and July 1, 1994, is
hereby further amended to change the name of the Contractor from Eclectic
Communications, Inc. to Cornell Corrections of California, Inc., effective
January 1, 1996.
Page 1, "Contractor's Name", of Amendment 3, is hereby changed to: "Cornell
Corrections of California, Inc.". Henceforth, all other references to
Contractor's former name, Eclectic Communications, Inc. is hereby changed by
this reference.
All other terms and conditions not amended remain in full force and effect.
CONTINUED ON 1 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER.
================================================================================
The provisions on the reverse side hereof constitute a part of this agreement.
IN WITNESS WHEREOF, this agreement has been executed by the parties hereto, upon
the date first above written.
================================================================================
STATE OF CALIFORNIA CONTRACTOR
================================================================================
AGENCY CONTRACTOR (IF OTHER THAN AN INDIVIDUAL,
STATE WHETHER A CORPORATION, PARTNERSHIP,
ETC.)
Department of Corrections Cornell Corrections of California, Inc.
(Baker CCF)
- --------------------------------------------------------------------------------
BY (AUTHORIZED SIGNATURE) BY (AUTHORIZED SIGNATURE)
/s/Sharon E. Planchon /s/Marvin Wiebe
- --------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING PRINTED NAME AND TITLE OF PERSON SIGNING
SHARON E. PLANCHON Marvin Wiebe, VP Finance and Administration
- --------------------------------------------------------------------------------
TITLE ADDRESS
Chief, Service Contracts 1823 Knoll Drive
Section Ventura, CA 93003 (805) 644-8700
- --------------------------------------------------------------------------------
CORNELL CORRECTIONS
JAN 26, 1996
RECEIVED
================================================================================
DEPARTMENT OF GENERAL SERVICES
USE ONLY
APPROVED
JAN 10, 1996
BY: /s/ J.B. WIHLE
-------------
J.B. Wihle
Ass't. Chief Counsel
<PAGE>
STATE OF CALIFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91) (REVERSE) CDC ELECTRONIC (1/94)
CORNELL CORRECTIONS OF CALIFORNIA, INC. -2- R92.401
(BAKER CCF) Amendment 5
1. The Contractor agrees to indemnify, defend and save harmless the State,
its officers, agents and employees from any and all claims and losses
accruing or resulting to any and all contractors, subcontractors,
materialmen, laborers and any other person, firm or corporation
furnishing or supplying work services, materials or supplies in
connection with the performance of this contract, and from any and all
claims and losses accruing or resulting to any person, firm or
corporation who may be injured or damaged by the Contractor in the
performance of this contract.
2. The Contractor, and the agents and employees of Contractor, in the
performance of the agreement, shall act in an independent capacity and
not as officers or employees or agents of State of California.
3. The State may terminate this agreement and be relieved of the payment
of any consideration to Contractor should Contractor fail to perform
the covenants herein contained at the time and in the manner herein
provided. In the event of such termination the State may proceed with
the work in any manner deemed proper by the State. The cost to the
State shall be deducted from any sum due the Contractor under this
agreement, and the balance, if any, shall be paid the Contractor upon
demand.
4. Without the written consent of the State, this agreement is not
assignable by Contractor either in whole or in part.
5. Time is of the essence in this agreement.
6. No alteration or variation of the terms of this contract shall be valid
unless made in writing and signed by the parties hereto, and no oral
understanding or agreement not incorporated herein, shall be binding on
any of the parties hereto.
7. The consideration to be paid Contractor, as provided herein, shall be
in compensation for all of Contractor's expenses incurred in the
performance hereof, including travel and per diem, unless otherwise
expressly so provided.
- --------------------------------------------------------------------------------
AMOUNT ENCUMBERED BY THIS PROGRAM/CATEGORY (CODE AND TITLE) FUND TITLE
DOCUMENT SUPPORT PROGRAM 31 GENERAL
$ 0 Gen
- ---------------------------- ---------------------------------------------------
PRIOR AMOUNT ENCUMBERED FOR (OPTIONAL USE)
THIS CONTRACT 3020/32000
$ 16,086,542.00 --------------------------------------------------
- ---------------------------- ITEM CHAPTER STATUTE FISCAL YEAR
TOTAL AMOUNT ENCUMBERED TO 5240-001-001(5260) 303 1995 95/6
DATE ---------------------------------------------------
$ 16,086,542.00 OBJECT OF EXPENDITURE (CODE AND TITLE)
- ---------------------------- 418.14
- --------------------------------------------------------------------------------
I HEREBY CERTIFY UPON MY OWN PERSONAL KNOWLEDGE T.B.A. NO. B.R. NO.
THAT BUDGETED FUNDS ARE AVAILABLE FOR THE PERIOD
AND PURPOSE OF THE EXPENDITURE STATED ABOVE.
- --------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER DATE
/s/ WANDA YOHN 12/20/95
Wanda Yohn
================================================================================
Page - 13
STATE OF CALIFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91) CDC ELECTRONIC (1/94)
- - APPROVED BY THE CONTRACT NUMBER AM. NO.
ATTORNEY GENERAL R92.401 5
TAXPAYER'S FEDERAL EMPLOYER IDENTIFICATION NUMBER
94-2411045
THIS AGREEMENT, made and entered into this 25TH day of MARCH, 1996, in the
State of California, by and between State of California, through its duly
elected or appointed, qualified and acting
- --------------------------------------------------------------------------------
TITLE OF OFFICER ACTING FOR STATE AGENCY
Chief, Contract Audit Management Department of Corrections, hereafter called
Branch the State, and
- --------------------------------------------------------------------------------
CONTRACTOR'S NAME
Cornell Corrections of California, Inc. (Baker CCF), hereafter called the
Contractor.
- --------------------------------------------------------------------------------
WITNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed,
does hereby agree to furnish to the State services and materials as follows:
(SET FORTH SERVICE TO BE RENDERED BY CONTRACTOR, AMOUNT TO BE PAID CONTRACTOR,
TIME FOR PERFORMANCE OR COMPLETION, AND ATTACH PLANS AND SPECIFICATIONS, IF
ANY.)
Contract Number R92.401, dated June 25, 1992, which was amended on December 25,
1992, June 27, 1994, July 1, 1994, and December 1, 1995, for a Community
Correctional Facility (CCF) and related services is hereby further amended to
add encumbrances and the related changes for Fiscal Year (FY) 1996/97. The
following paragraphs are revised:
1. Page 2, Paragraph 2 of Amendment 3: The total amount payable under this
contract shall not exceed $4.036,133 in FY 1992/93; $3,973,547 in FY
1993/94; $4,033,655 in FY 1994/95; $4,043,207 in FY 1995/96; $4,085,050
in FY 1996/97. The cumulative total amount of this contract through
June 30, 1997 shall not exceed Twenty Million, One Hundred Seventy-One
Thousand, Five Hundred Ninety-Two Dollars ($20,171,592).
2. Page 2, Paragraph 3 of Amendment 3: Effective July 1, 1996, the
Contractor will provide services for as many as 95,630 participant days
at a per diem rate of $35.95 per participant day and zero "free beds."
3. Page 2, Paragraph 4 of Amendment 3: Effective July 1, 1996, the actual
base facility lease costs shall not exceed $451,285 per fiscal year.
CONTINUED ON 9 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER.
================================================================================
The provisions on the reverse side hereof constitute a part of this agreement.
IN WITNESS WHEREOF, this agreement has been executed by the parties hereto, upon
the date first above written.
================================================================================
STATE OF CALIFORNIA CONTRACTOR
================================================================================
AGENCY CONTRACTOR (IF OTHER THAN AN INDIVIDUAL,
STATE WHETHER A CORPORATION, PARTNERSHIP,
ETC.)
Department of Corrections Cornell Corrections of California, Inc.
(Baker CCF)
- --------------------------------------------------------------------------------
BY (AUTHORIZED SIGNATURE) BY (AUTHORIZED SIGNATURE)
/s/Sharon E. Planchon /s/Marvin Wiebe
- --------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING PRINTED NAME AND TITLE OF PERSON SIGNING
SHARON E. PLANCHON Marvin Wiebe, VP Finance and Administration
- --------------------------------------------------------------------------------
TITLE ADDRESS
Chief, Service Contracts 1823 Knoll Drive
Section Ventura, CA 93003 (805) 644-8700
- --------------------------------------------------------------------------------
================================================================================
DEPARTMENT OF GENERAL SERVICES
USE ONLY
Department Of General Services
APPROVED
MAY 30, 1996
BY: /s/ J.B. WIHLE
-------------
J.B. Wihle
Ass't. Chief Counsel
<PAGE>
STATE OF CALIFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91) (REVERSE) CDC ELECTRONIC (1/94)
CORNELL CORRECTIONS OF CALIFORNIA, INC. -2- R92.401
(BAKER CCF) Amendment 5
1. The Contractor agrees to indemnify, defend and save harmless the State,
its officers, agents and employees from any and all claims and losses
accruing or resulting to any and all contractors, subcontractors,
materialmen, laborers and any other person, firm or corporation
furnishing or supplying work services, materials or supplies in
connection with the performance of this contract, and from any and all
claims and losses accruing or resulting to any person, firm or
corporation who may be injured or damaged by the Contractor in the
performance of this contract.
2. The Contractor, and the agents and employees of Contractor, in the
performance of the agreement, shall act in an independent capacity and
not as officers or employees or agents of State of California.
3. The State may terminate this agreement and be relieved of the payment
of any consideration to Contractor should Contractor fail to perform
the covenants herein contained at the time and in the manner herein
provided. In the event of such termination the State may proceed with
the work in any manner deemed proper by the State. The cost to the
State shall be deducted from any sum due the Contractor under this
agreement, and the balance, if any, shall be paid the Contractor upon
demand.
4. Without the written consent of the State, this agreement is not
assignable by Contractor either in whole or in part.
5. Time is of the essence in this agreement.
6. No alteration or variation of the terms of this contract shall be valid
unless made in writing and signed by the parties hereto, and no oral
understanding or agreement not incorporated herein, shall be binding on
any of the parties hereto.
7. The consideration to be paid Contractor, as provided herein, shall be
in compensation for all of Contractor's expenses incurred in the
performance hereof, including travel and per diem, unless otherwise
expressly so provided.
- --------------------------------------------------------------------------------
AMOUNT ENCUMBERED BY THIS PROGRAM/CATEGORY (CODE AND TITLE) FUND TITLE
DOCUMENT SUPPORT PROGRAM 31 GENERAL
$ 4,085,050.00 ---------------------------------------------------
- ---------------------------- (OPTIONAL USE)
PRIOR AMOUNT ENCUMBERED FOR 3020/32000
THIS CONTRACT --------------------------------------------------
$ 16,086,542.00 ITEM CHAPTER STATUTE FISCAL YEAR
- ---------------------------- 5240-001-001(5260) PEND 1996 96/7
TOTAL AMOUNT ENCUMBERED TO ---------------------------------------------------
DATE OBJECT OF EXPENDITURE (CODE AND TITLE)
$ 20,171,592.00 418.14
- ---------------------------- ---------------------------------------------------
- --------------------------------------------------------------------------------
I HEREBY CERTIFY UPON MY OWN PERSONAL KNOWLEDGE T.B.A. NO. B.R. NO.
THAT BUDGETED FUNDS ARE AVAILABLE FOR THE PERIOD
AND PURPOSE OF THE EXPENDITURE STATED ABOVE.
- --------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER DATE
/s/ SHIRLEY A. CLARK 3/27/96
================================================================================
Page - 13
CORNELL CORRECTIONS OF CALIFORNIA, INC. & -15- R92.401
(BAKER CCF) Amendment 5
4. Page 2, Paragraph 6 of Amendment 3: Effective July 1, 1996, the
Contractor's minimum required staff and approximate position funding
levels shall be in accordance with Exhibit 6a, attached hereto and
incorporated herein.
5. Page 3, Paragraph 7 of Amendment 3: Effective July 1, 1996, the State
will reimburse the Contractor for allotment costs as detailed in
Exhibit 9, attached hereto and incorporated herein.
6. Page 3, Paragraph 10 of Amendment 3: Effective July 1, 1996, Post
Assignment Schedule Summary and Detail shall be in accordance with
Exhibits 6b through 6c-4, attached hereto and incorporated herein.
The following paragraphs are added as Scope of Services provisions to the
contract:
7. BOARD OF CORRECTIONS TRAINING STANDARDS
The Contractor shall ensure all Custodial Officers meet Board of
Corrections (BOC) Training Standards as stipulated in Title 15,
Subchapter 1, Sections 131, 179 (exclusive of the 832 Penal Code
requirement). Subsequently, each Custody Officer must receive 40 hours
of training annually, 24 hours of which must be BOC certified as
stipulated in Title 15, Subchapter 1, Section 184(a)(6) and (b), with
the remaining 16 hours on California Department of Corrections mandated
subjects, including but not limited to, sexual harassment, inmate/staff
relations, and first aid. This provision supersedes the requirements
for staff training described in the Statement of Work (SOW).
During the 1996/97 FY, the Contractor shall provide basis training to
any existing custody staff who have not yet received the full 116 hours
of basic training.
Staff training costs for BOC Training Standards are allowable in
accordance with the SOW. Other staff training costs will be limited to
that training which is directly related to his/her job performance and
as allowed by IRS standards. This provision supersedes the requirements
for staff training described in the Financial Management Handbook.
8. KITCHEN RENOVATION
The State will reimburse the Contractor for one-time renovation costs
of $32,436 in FY 1996/97 for the renovation of the kitchen. No kitchen
renovations shall commence until specifications and bids have been
received and approved in writing by the CCCA Administrator. All
renovation and equipment costs must comply with the competitive three
bid process. Contractor shall submit actual receipts with invoices for
reimbursement.
All other terms and conditions not amended remain in full force and effect.
Page - 15
Exhibit 10.7
OPERATING AGREEMENT
This Operating Agreement (the "Agreement") is made and entered
into as of July 1, 1996 (the "Effective Date"), by and between each of MIDTEX
DETENTIONS, INC. ("Contractor"), THE CITY OF BIG SPRING, TEXAS ("City"), and
CORNELL CORRECTIONS OF TEXAS, INC.
("Cornell").
WITNESSETH:
WHEREAS, the City operates the Big Spring Correctional Center
("BSCC") pursuant to the Inter Governmental Agreement (Contract No. IGA 023-9),
as amended, together with the Statement of Work - Contract Confinement Services
("IGA");
WHEREAS, Contractor renders senior management services to the
City for the BSCC;
WHEREAS, the City desires to transfer the operation of the BSCC
to Contractor pursuant to the IGA and as described in Contractor's response to
the RFP issued by the City titled the City of Big Spring, Texas Request for
Proposals and Bids for the Acquisition and Operation of Big Spring Correctional
Center - Answered April 4, 1996; and
WHEREAS, the parties desire that Contractor transfer operation of
the BSCC to Cornell;
NOW, THEREFORE, the parties agree as follows:
1. Contractor shall operate and maintain the BSCC, consisting of the
Interstate Unit, the Airpark Unit, and the Flightline Unit
(collectively, the "Facilities") located in Big Spring, Texas, on behalf
of the City and pursuant to the IGA. Contractor shall not take any
action with respect to the BSCC that would be inconsistent with, or
violate the terms of, the IGA so long as the IGA is in effect.
2. Subject to the termination provisions of Section 4, the initial term of
this Agreement shall be the twenty (20) year period beginning on the
Effective Date. However, the City will in no way be liable during the
term of the initial term of this Agreement for any costs or shortfalls
in revenues due to reduced occupancy by the Federal Bureau of Prisons
("FBOP"), the Immigration and Naturalization Service ("INS"), the U.S.
Marshals Service ("USMS"), and any other agency housing inmates at the
Facilities pursuant to the IGA (the "Other Agencies") (collectively,
FBOP, INS, USMS and the Other Agencies shall be referred to as "FBOP").
During the initial term of this Agreement, the per diem rate charged by
Contractor to the City shall be adjusted as negotiated with the FBOP
pursuant to the IGA. Subject to the termination provisions of Section 4,
at the end of the initial term of this Agreement, Contractor shall have
the option exercisable in its sole discretion to extend this Agreement
1
for up to three successive five (5) year periods which shall be
exercisable by Contractor giving written notice to the City at least 90
days prior to the commencement of such applicable extended term. The
first such extended term shall commence on the day following the
expiration of the initial term, and each additional extended term shall
commence on the day following the expiration of the immediately
preceding extended term. Each extended term shall be on the same terms,
conditions and covenants that were in effect during the initial term or
during the preceding extended term (as applicable). Following the
initial term of this Agreement and the three successive five (5) year
renewal periods that are at the option of Contractor, this Agreement
shall be renewable in five (5) year increments upon the mutual written
consent of Contractor and the City.
3. INVOICING AND CONTRACTOR MANAGEMENT FEES:
A. GENERAL - All operating costs related to the Facilities (i.e.,
personnel, housing, food and other vendor obligations) will be
the responsibility of, and paid by, Contractor. All Facility
personnel will be employed by Contractor. Accordingly, all
operating costs will be paid by Contractor and all per diem
billings, reimbursements and accounts receivables be
processed/received by Contractor as described in Section 3.B
below.
B. CONTRACTOR MANAGEMENT FEE - In accordance with the terms below,
Contractor, on behalf of the City, will directly bill FBOP for
services rendered in accordance with the IGA. Contractor will be
entitled to a management fee equal to the excess of all revenues
received with respect of the Facilities, less all expenses
(including the reimbursement described in Section 3.C). All
revenues from the FBOP will be payable to the City, will be
received directly by Contractor and will be deposited by
Contractor in the City's BSCC account at State National Bank of
Big Spring. Contractor shall then prepare checks drawn on the
City's BSCC account under which the City is the payor payable
(i) to the City in the amount owing to the City pursuant to
Section 3.C and (ii) to Contractor in the amount of the balance
of the deposit. The City shall execute and deliver the checks
described in the preceding sentence immediately but in no case
later than 3 business days after they are presented to the City
by Contractor. Such processing will insure that the City
receives the amount due to it pursuant to Section 3.C below and
that Contractor receives all other revenues as soon as
practicable.
C. CITY REIMBURSEMENT FOR INDIRECT EXPENSE - The City shall receive
monthly in consideration for its continued involvement in the
administration of the IGA an amount equal to $0.70 per inmate
day with respect to each inmate housed at the Facilities
including inmates housed other than pursuant to the IGA
("Non-IGA Inmates"). (Example: the City would receive $306,600
per year if the Facilities maintain an exact population of 1,200
every day of the year; computed as $0.70 * 1,200 * 365 days =
$306,600). This fee shall not be applicable to any inmate not
housed at one of the currently existing units of the Facilities.
The City agrees to
2
negotiate in good faith with Contractor regarding the fee paid
to the City with respect to the Non-IGA Inmates if, in the
judgment of Contractor, the economic pressures to Contractor
with respect to the revenues and costs associated with the
housing of the Non-IGA Inmates justify a renegotiation of the
fee.
D. PROCEDURES - Bills/vouchers for payment shall be submitted by
Contractor on behalf of the City pursuant to the IGA directly to
the FBOP at the beginning of each calendar month, but not later
than the fifth business day of each month. Contractor shall
submit to the City a photocopy of the bill/voucher that is
submitted to the FBOP. The bill/voucher will request payment for
services rendered during the previous calendar month in
accordance with, and within the time specified in, the IGA.
Payment shall be requested using a per diem method as specified
in the IGA. The monthly billing submitted to the FBOP shall be
for all inmates housed at the Facilities. The daily rate or per
diem methodology of payment shall follow the terms of the IGA
and shall bill for the day of inmate arrival, but not the day of
inmate departure. At the close of every "regular business day,"
the official billing count shall be taken and recorded.
4. COMMENCEMENT AND TERMINATION.
A. COMMENCEMENT - The period of this Agreement shall commence
immediately at 12:01 A.M. on the Effective Date.
B. NOTICE OF DEFAULT - If Contractor or the City receives a notice
of default under the terms of the IGA or a notice of intent to
terminate or notice of termination of the IGA from the FBOP (the
"Notice"), then for a period of up to 90 days from the date of
the Notice or any cure period stated in the Notice whichever
period is shorter (the "Cure Period"), Contractor and the City
will reasonably cooperate to cure any default or other
occurrence giving rise to the Notice (the "Default").
C. RIGHT OF SALE - Subject to the terms of Section 15, Contractor
shall have the right to assign its rights under this Agreement
during the Cure Period.
D. NEW OPERATOR - If Contractor does not choose to exercise its
right to assign its rights under this Agreement pursuant to
Section 4.C, Contractor and the City shall negotiate in good
faith to secure a new operator (as selected and on terms
negotiated by Contractor, with FBOP written approval and City
written approval (which City approval shall not be unreasonably
withheld) of the selected new operator ("New Operator")) or a
new population of inmates for the Facilities.
E. TERMINATION PAYMENT - In the event of (i) the termination of
this Agreement for any reason pursuant to this Section 4 or the
removal of Contractor as operator of BSCC and (ii) the
replacement of Contractor as operator of BSCC with New Operator
or with the City, as a condition of the City's agreement to
engage New Operator or the
3
City's assumption of the role of operator of BSCC, as
applicable, the City shall pay, or shall require New Operator to
agree to pay, monthly rent to Contractor (or, if applicable,
Contractor's lender) equal to the amounts set forth below
opposite the name of each of the Units of the Facilities:
FACILITY 1996 MONTHLY RENTAL
Interstate Unit $ 73,000
Airpark Unit $104,190
Flightline Unit $146,000
With respect to each of the Interstate Unit, the Airpark Unit
and the Flightline Unit, $6,000 of the fixed monthly rent for
each Unit will increase on each fifth (5th) anniversary of this
Agreement, by one percent (1%) for each point of increase in the
Consumer Price Index based on the United States average
published by the Bureau of Labor Statistics, U.S. Department of
Labor, at the effective date of this Agreement. The balance of
the monthly rent for each unit of the Facilities will not
increase. The City or the New Operator, as applicable, shall
only be obligated to pay the above-referenced rental amount with
respect to units of the Facilities that are being operated by
the City or by the New Operator. The obligation for the City or
the New Operator to pay rent to Contractor shall terminate upon
expiration or termination (as therein provided) of the leases
between the City and Contractor with respect to the real estate
on which the Facilities are situated (the "Leases"). This rent
shall be in addition to any rent payable to Contractor with
respect to all leases related to operation of the Facilities.
F. BANKRUPTCY - In the event of the commencement of a bankruptcy
proceeding under the Bankruptcy Code (11 USC ss. 101, ET SEQ.)
with respect to Contractor, Contractor shall make provision for
the City to be treated as a secured creditor, to the extent
possible without jeopardizing the City's position as a lessor
under the Leases, with respect to all amounts owing by
Contractor to the City under this Agreement.
5. Pursuant to the IGA, the monetary obligation in each fiscal year in
which Contractor operates the Facilities is subject to and contingent
upon the availability of funds being appropriated by the Federal
government for the purpose of this Agreement.
6. Regarding Contractor's future operation of the Facilities which are
currently being operated by the City, to the extent the following are
not currently in place, Contractor will prepare and submit to the City
the following documents:
a) A fully developed policy and operations manual which covers all
aspects of Facility operations.
b) A fully developed training package to be administered to all
Facility staff employed by Contractor.
4
c) An emergency procedures/security manual for confidential use by
staff supervisors employed by Contractor.
d) Post orders for all facility staff positions.
7. Once the above documents, to the extent that such are not currently in
place, are approved by the City (and the FBOP as necessary), Contractor
will prepare sufficient copies for use at the Facilities and will
provide the City with two copies of each document which shall become the
City's property for its use. Because of security requirements, the City
shall maintain the confidentiality of these documents and shall not
distribute these documents outside of City offices, except in order to
comply with legal requirements imposed on the City that compel
disclosure. All rights to the above-mentioned documents become the sole
property of Contractor and may not, in whole or part, be copied,
photocopied, reproduced, translated, or reduced to any electronic medium
or machine readable form without prior consent, in writing, from
Contractor.
8. Contractor agrees to indemnify, defend and save harmless the City, its
officers, agents and employees from any and all claims and losses
accruing or resulting to any and all Contractor's, subcontractors,
materials or supplies in connection with the performance of this
Agreement and from any and all claims and losses accruing or resulting
to any person, firm or corporation who may be injured or damaged by
Contractor in the performance of this Agreement, except for any loss or
claim resulting from the negligent or intentional acts of the City and
except for any loss or claim arising from any event occurring prior to
the Effective Date.
9. The City agrees to indemnify, defend and save harmless Contractor, its
officers, agents and employees from any and all claims and losses
accruing prior to the Effective Date with respect to the BSCC (including
any claim for compensation or employee benefits for periods prior to the
Effective Date) and for any loss or claim resulting from the negligent
or intentional acts of the City occurring after the Effective Date.
10. No alteration or variance of the terms of this Agreement shall be valid
unless made in writing and signed by the parties hereto, and no oral
understanding or agreement not incorporated shall be binding on any of
the parties hereto.
11. Contractor shall have the exclusive right to determine where inmates are
housed among the various Units of the Facilities.
12. Contractor is required to have Comprehensive General liability insurance
with a minimum coverage of $1,000,000, Worker's Compensation insurance
in statutory limits, Professional/Employer's Liability insurance minimum
coverage of $1,000,000 per occurrence for bodily injury, and excess
liability insurance of $5,000,000. The City shall be named as additional
insured and notification shall be supplied 10 days prior to any
cancellation. This insurance is to be carried by one or more insurance
companies authorized
5
to transact business in Texas and approved by the City. Contractor shall
furnish the City with certificates of all insurance required by this
Agreement.
13. Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be settled by binding arbitration in
accordance with the rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrators may be entered in
any court of competent jurisdiction. Any such controversy or claim shall
be submitted to an arbitrator agreed to by Contractor and the City; or,
if they cannot agree on an arbitrator, an arbitrator shall be selected
for them by the American Arbitration Association, and such arbitration
shall be held in Big Spring, Texas.
14. Contractor, in conjunction with the City, is authorized to negotiate
intergovernmental agreements for the purpose of housing inmates for
other governmental agencies. The City Manager shall be involved during
this process and shall provide assistance as required by Contractor and
other governmental entities, and final acceptance of negotiated
contracts must receive approval by the parties to this Agreement. The
City will not unreasonably restrict Contractor's expansion of programs
as other opportunities become available in the field of corrections.
15. The City consents to Contractor's transfer of its rights under this
Agreement to, and the assumption of Contractor's obligations under this
Agreement by, Cornell as of the Effective Date. At and following the
assignment of this Agreement to Cornell, a reference in this Agreement
to "Contractor" shall be deemed a reference to "Cornell." Effective on
the assignment on this Agreement to Cornell, the City and Cornell
release MIDTEX from all liability under this Agreement. Cornell's
rights, privileges and responsibilities under the terms of this
Agreement shall not be assignable by Cornell except with the written
consent of the City, which consent will not be unreasonably withheld;
provided, however, that Cornell may, without the consent of the City,
assign its rights under this Agreement to any lender in connection with
any indebtedness incurred by Cornell, including any refinancing,
modification, amendment or extension of any such indebtedness incurred
by Cornell. The City's rights, privileges and responsibilities under the
terms of this Agreement shall not be assignable by the City except with
the written consent of Cornell, which consent shall not be unreasonably
withheld.
16. As of the Effective Date, the City is hereby transferring to Cornell the
assets, and Cornell is hereby assuming the liabilities, described in the
City's Enterprise Funds Combining Balance Sheet, dated September 30,
1995, as updated as of the Effective Date (the "Balance Sheet"), under
the heading "Correctional Center"; provided, however, that Cornell shall
not acquire any of the City's compost assets, shall not acquire the
City's fee simple interest in the real estate on which the Facilities
are situated, and shall not assume any liabilities (i) that are not
described on the Balance Sheet, (ii) for workers' compensation claims or
litigation (including, but not limited to, the Rodriguez wrongful
termination lawsuit and the pending civil rights claim) with respect to
occurrences arising prior to the Effective Date, and (iii) associated
with the real estate assets and compost assets described on the Balance
Sheet
6
(such assets to be transferred to Cornell and liabilities to be assumed
by Cornell are herein referred to as the "BSCC Fund"). In addition,
subject to the requirements regarding inmate trust accounts, the City
shall transfer to Cornell and Cornell shall have all rights to all
future revenues (including vending machine and telephone revenues) that
were payable to the BSCC Fund prior to the Effective Date. The City
shall assign to Contractor all rents payable by the INS with respect to
the Immigration Courtroom Hearing Program.
17. In consideration for the City's transfer of the BSCC Fund to Cornell and
the City's renegotiation with Ed Davenport of the leases with respect to
the Facilities, upon the closing of the transfer by Ed Davenport and
MIDTEX DETENTIONS, INC. ("MIDTEX") to Cornell of this Operating
Agreement and the leases for the Facilities, Cornell shall pay, on
behalf of Ed Davenport, $3,700,000 to the City for the City's general
fund, or any other City fund designated by the City.
18. The City shall not discourage its employees who are employed at the BSCC
from accepting employment with Cornell.
19. Cornell shall pay a bonus to employees currently employed at BSCC who
resign from their employment with the City and accept employment with
Cornell, and such bonus shall be in consideration for such resignation
and acceptance. The total bonus amount (including all out-of-pocket tax
and withholding costs to Cornell) shall not exceed $600,000, and the
bonus shall be payable 50% within 60 days following the Effective Date
and 50% to such employees who shall remain in the employ of Cornell on
the second anniversary of the Effective Date. Cornell shall deposit
$300,000 in a restricted account to be used solely to pay the bonus on
the second anniversary of the Effective Date. The amounts of each bonus
to an employee shall be determined by Cornell, considering each
employee-recipient's contribution to the Texas Municipal Retirement
System. Cornell shall provide employee benefit plans to the employees of
the City hired by Cornell that are consistent with the practice of
Cornell and its affiliates and comparable with those employee benefit
plans offered to other employees of Cornell and its affiliates employed
in similar capacities.
20. As of the Effective Date, except for the Indenture between the United
States of America and the City of Big Spring, Texas, dated October 6,
1978 (the "FAA Indenture"), except for the terms of the IGA, and except
for encumbrances noted on Schedule B and C of the title commitment with
respect to the real estate on which the Facilities are constructed, the
City will have good and marketable title, free and clear of all liens,
claims, mortgages, security interests, title imperfections and
encumbrances, to the BSCC Fund and to the real estate on which the
Facilities are constructed. As of the Effective Date, the City
represents, warrants and covenants that (i) the real estate on which the
Facilities are constructed are in compliance with all applicable zoning
laws and (ii) all permits necessary for Cornell to operate the BSCC
shall have been issued. Following the Effective Date, the City agrees to
provide to Contractor (i) zoning variances to maintain the Facilities'
compliance with all applicable zoning laws and (ii) all City permits
necessary for Cornell to operate the BSCC. Following
7
the Effective Date, the City agrees to provide assistance to Contractor
to obtain any County or other non-City permit required to operate the
BSCC.
21. The City shall lease the following items of property to Cornell at the
annual rental rate set forth opposite the description of the item:
PROPERTY ANNUAL RENTAL (Beginning July 1, 1996)
Building 50 $6,264
Building 240 4,116
Training Center 7,796
Firing Range 2,000
South Equipment Yard 564
22. All notices required under this Agreement must be given by certified
mail, return receipt requested, addressed to the proper party at the
following addressees:
Contractor:
MIDTEX DETENTIONS, INC.
610 Main
Big Spring, Texas 79720
Attention: Johnny Rutherford, President
Telephone: (915) 264-0060
Facsimile: (915) 267-6522
Assignee:
Cornell Corrections of Texas, Inc.
4801 Woodway, Suite 400W
Houston, Texas 77056
Attention: David M. Cornell, President
Telephone: (713) 623-0790
Facsimile: (713) 623-2853
The City:
City Manager
City of Big Spring, Texas
310 Nolan
Big Spring, Texas 79720
Telephone: (915) 264-2400
Facsimile: (915) 263-8310
Either party may change the address to which notices are to be sent by
giving the other party notice of the new address in the manner provided
in this section.
23. This Agreement (a) supersedes all prior agreements (except for lease
agreements relating to the Facilities) between the parties (written or
oral), (b) is intended as a complete and exclusive statement of the
terms of the Agreement between the parties to this Agreement and (c)
does not and is not intended to confer any rights or remedies on any
person other than the parties to this Agreement.
8
24. This Agreement shall be construed under and in accordance with the laws
of the State of Texas.
25. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which shall constitute one
and the same instrument.
26. This Agreement shall be binding on, and inure to the benefit of, the
legal representatives, successors and assigns of the respective parties.
27. If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the
parties hereto will negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as possible
in an acceptable manner so that the transactions contemplated hereby are
fulfilled to the greatest extent possible.
28. MIDTEX and the City hereby cancel the Management Agreement, dated
February 18, 1994, and all previous agreements between MIDTEX and the
City. MIDTEX and the City agree to jointly defend the Rodriguez wrongful
termination lawsuit and the civil rights claim. MIDTEX represents to the
City that Ed Davenport has provided MIDTEX with a letter of credit to
provide MIDTEX with adequate working capital to defend and respond to
any losses or settlements by MIDTEX arising from the Rodriguez wrongful
termination lawsuit and the civil rights claim.
29. Contractor shall provide the City with a copy of all correspondence
regarding contracting, monitoring, or materially affecting the viability
of the IGA sent to or received from the FBOP within 5 business days
after it is sent or received, as applicable. The City shall provide
Contractor with a copy of all correspondence regarding contracting,
monitoring, or materially affecting the viability of the IGA sent to or
received from the FBOP within 5 business days after it is sent or
received, as applicable.
9
30. Contractor shall provide to the City reasonable assistance and
reasonable access to applicable records relating to the BSCC Fund to the
extent necessary for the City to respond to any inquiry of the FBOP or
any other governing authority (other than the City).
MIDTEX DETENTIONS, INC.
By /s/ JOHNNY RUTHERFORD
Johnny Rutherford,
President
THE CITY OF BIG SPRING
By /s/ TIM BLACKSHEAR
Tim Blackshear, Mayor
City of Big Spring, Texas
Attest:
TOM FERGUSON
Tom Ferguson, City Secretary
CORNELL CORRECTIONS OF TEXAS, INC.
By /s/ DAVID M. CORNELL
David M. Cornell,
President
10
ASSIGNMENT AND ASSUMPTION OF OPERATING AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION OF OPERATING AGREEMENT (this
"Assignment") is made as of this 1st day of July, 1996, from MIDTEX DETENTIONS,
INC., a Texas corporation ("Assignor"), to CORNELL CORRECTIONS OF TEXAS, INC., a
Delaware corporation ("Assignee"), as follows:
RECITALS
A. Assignor is a party to that certain Operating Agreement between
Assignor and The City of Big Spring, dated July 1, 1996 (the
"Operating Agreement").
B. Assignor desires to assign the Operating Agreement to Assignee.
C. Assignee desires to assume the Assignor's obligations under the
Operating Agreement.
AGREEMENT
Now, therefore, for and in consideration of Ten Dollars ($10.00) and
other good and valuable consideration, in hand paid by Assignee to Assignor, the
receipt and sufficiency of which are hereby acknowledged and confessed,
effective as of the date hereof, Assignor hereby assigns to Assignee all right,
title and interest Assignor may have in and to the Operating Agreement. From and
after the date hereof, Assignee hereby agrees to be bound by all the terms and
provisions of the Operating Agreement and hereby assumes and agrees to pay and
perform all obligations of Assignor under the Operating Agreement. Assignee
agrees to indemnify, defend and save harmless Assignor, its officers, agents and
employees from any and all claims and losses accruing from and after the date
hereof with respect to the Operating Agreement.
-1-
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment
and Assumption of Operating Agreement as of the date set forth above.
ASSIGNOR:
MIDTEX DETENTIONS, INC.
By /s/ JOHNNY RUTHERFORD
Johnny Rutherford,
President
ASSIGNEE:
CORNELL CORRECTIONS OF TEXAS, INC.
By /s/ DAVID M. CORNELL
David M. Cornell,
President
-2-
JOINDER
The City of Big Spring (the "City") hereby executes this joinder to
acknowledge the City's release of Assignor from any and all liability under the
Operating Agreement.
Dated as of July 9, 1996.
THE CITY OF BIG SPRING
By /s/ TIM BLACKSHEAR
Tim Blackshear, Mayor
City of Big Spring, Texas
Attest:
/s/ TOM FERGUSON
Tom Ferguson, City Secretary
-3-
EXHIBIT 10.8
STATE OF CALIFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91) CDC ELECTRONIC (1/94)
- -APPROVED BY THE CONTRACT NUMBER AM. NO.
ATTORNEY GENERAL
R92.132
TAXPAYER'S FEDERAL EMPLOYER IDENTIFICATION NUMBER
94-2411045
THIS AGREEMENT, made and entered into this 1ST day of MARCH , 19 93 , in the
State of California, by and between State of California, through its duly
elected or appointed, qualified and acting
- --------------------------------------------------------------------------------
TITLE OF OFFICER ACTING FOR STATE AGENCY
Chief, Contract Services Section Department of Corrections, hereafter
called the State, and
- --------------------------------------------------------------------------------
CONTRACTOR'S NAME
Eclectic Communications, Inc. (Leo Chesney Center [Live Oak]), hereafter called
the Contractor.
- --------------------------------------------------------------------------------
WITNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed,
does hereby agree to furnish to the State services and materials as follows:
(SET FORTH SERVICE TO BE RENDERED BY CONTRACTOR, AMOUNT TO BE PAID CONTRACTOR,
TIME FOR PERFORMANCE OR COMPLETION, AND ATTACH PLANS AND SPECIFICATIONS, IF
ANY.)
1. Pursuant to Sections 6250-56 of the California Penal Code, Title 15,
Chapter 1, Rules and Regulations of the Director of the California
Department of Corrections (CDC) and the Department's Operations Manual
(DOM), the Contractor agrees to provide housing, sustenance, supervision
and/or other such services and accommodations for selected inmates who
meet community correctional facility screening criteria who are under
the jurisdiction of the Director of CDC, and who hereinafter shall be
referred to as the State's participants or inmates. Contractor's
services shall be provided in accordance with the following:
a) the Scope of Work (Attachment A, attached hereto and
incorporated herein);
b) the General Terms and Conditions (Attachment B, attached hereto
and incorporated herein);
CONTINUED ON 28 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER.
================================================================================
The provisions on the reverse side hereof constitute a part of this
agreement. IN WITNESS WHEREOF, this agreement has been executed by the parties
hereto, upon the date first above written.
================================================================================
STATE OF CALIFORNIA CONTRACTOR
- --------------------------------------------------------------------------------
AGENCY CONTRACTOR (IF OTHER THAN AN INDIVIDUAL,
STATE WHETHER A CORPORATION,
PARTNERSHIP, ETC.)
Department of Corrections Eclectic Communications, Inc.
- --------------------------------------------------------------------------------
BY (AUTHORIZED SIGNATURE) BY (AUTHORIZED SIGNATURE)
/s/ Frank E. Renwick /s/ Arthur McDonald
- --------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING PRINTED NAME AND TITLE OF PERSON SIGNING
FRANK E. RENWICK, Chief Arthur McDonald, President
- --------------------------------------------------------------------------------
ADDRESS
TITLE 1823 Knoll Drive, Ste. 8
Contract Services Section Ventura, CA 93003 (805) 644-8700
- --------------------------------------------------------------------------------
AMOUNT ENCUMBERED BY THIS PROGRAM/CATEGORY (CODE AND TITLE) FUND TITLE
DOCUMENT SUPPORT PROGRAM 31 GENERAL
$ 771649.00 92/93 GENERAL
3093379.00 93/94
- --------------------------------------------------------------------------------
PRIOR AMOUNT ENCUMBERED FOR (OPTIONAL USE)
THIS CONTRACT 3020/34010
$ 00 ----------------------------------------------------
- ----------------------------ITEM CHAPTER STATUTE FISCAL YEAR
TOTAL AMOUNT ENCUMBERED TO 587 1992 92/93
DATE 5240-001-001(5260) Pend 1993 93/9
----------------------------------------------------
$ 3865028.00 OBJECT OF EXPENDITURE (CODE AND TITLE)
418.13
- --------------------------------------------------------------------------------
I hereby certify upon my own personal T.B.A. NO. B.R. NO.
knowledge that budgeted funds are
available for the period and purpose
of the expenditure stated above.
- --------------------------------------------------------------------------------
May 28, 1993 SIGNATURE OF ACCOUNTING OFFICER DATE
/s/ Shirley A. Clark 5/11/93
- --------------------------------------------------------------------------------
DEPARTMENT OF GENERAL SERVICES
USE ONLY
Department of General Services
APPROVED
By: /s/ GARY NESS
-------------
Ass't. Chief Counsel
================================================================================
STATE OF CALIFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91) CDC ELECTRONIC (1/94)
- -APPROVED BY THE ATTORNEY GENERAL CONTRACT NUMBER AM. NO.
R92.132 1
- --------------------------------------------------------------------------------
TAXPAYER'S FEDERAL EMPLOYER IDENTIFICATION NUMBER
94-2411045
- --------------------------------------------------------------------------------
THIS AGREEMENT, made and entered into this 25TH day of JUNE, 1994, in the State
of California, by and between State of California, through its duly elected or
appointed, qualified and acting
- --------------------------------------------------------------------------------
TITLE OF OFFICER ACTING FOR STATE AGENCY
Chief, Contract and Audit Management
Branch Department of Corrections, hereafter
called the State, and
- --------------------------------------------------------------------------------
CONTRACTOR'S NAME
Electric Communications, Inc. (Leo Chesney Center), hereafter called the
Contractor.
- --------------------------------------------------------------------------------
WITNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed,
does hereby agree to furnish to the State services and materials as follows:
(SET FORTH SERVICE TO BE RENDERED BY CONTRACTOR, AMOUNT TO BE PAID CONTRACTOR,
TIME FOR PERFORMANCE OR COMPLETION, AND ATTACH PLANS AND SPECIFICATIONS, IF
ANY.)
Contract R92.132 dated March 1, 1993, for a community correctional facility and
related services is hereby amended effective July 1, 1994 in order to add
encumbrances and the related changes for the 1994/95 fiscal year (FY). The
following paragraphs are revised:
1. Page 2, paragraph 3 now reads: The total amount payable under this
contract in FY 92/93 shall not exceed $771,649; $3,093,379 in FY 93/94;
and in FY 1994/95 shall not exceed $3,093,541. The cumulative total of
this contract through June 30, 1995 shall not exceed Six Million, Nine
Hundred Fifty- Eight Thousand, Five Hundred Sixty-Nine Dollars
($6,958,569).
2. Attachment A, page 1, section 3(a): For FY 1994/95, Contractor agrees to
provide services for as many as 71,175 participant days, and the
Contractor will be reimbursed at the per diem rate of $34.18 per
participant day.
3. Attachment A, page 3, section 8(a): Effective July 1, 1994, the State
shall reimburse the Contractor monthly for actual facility lease/use
costs at an amount not to exceed $40,692 per month.
CONTINUED ON 4 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER.
================================================================================
The provisions on the reverse side hereof constitute a part of this
agreement. IN WITNESS WHEREOF, this agreement has been executed by the parties
hereto, upon the date first above written.
================================================================================
STATE OF CALIFORNIA CONTRACTOR
AGENCY CONTRACTOR (IF OTHER THAN AN INDIVIDUAL,
STATE WHETHER A CORPORATION, PARTNERSHIP,
ETC.)
Department of Corrections Eclectic Communications, Inc.
- --------------------------------------------------------------------------------
BY (AUTHORIZED SIGNATURE) BY (AUTHORIZED SIGNATURE)
/s/ Frank E. Renwick /s/ Marvin Wiebe
- --------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING PRINTED NAME AND TITLE OF PERSON SIGNING
FRANK E. RENWICK, Chief Marvin Wiebe, VP, Finance and
Administration
- --------------------------------------------------------------------------------
ADDRESS
TITLE 1823 Knoll Street, Ste. 8
Contract & Audit Management Branch Ventura, CA 93003 (805) 644-8700
- --------------------------------------------------------------------------------
AMOUNT ENCUMBERED BY THIS PROGRAM/CATEGORY (CODE AND TITLE) FUND TITLE
DOCUMENT SUPPORT PROGRAM 31 GENERAL
$ 3,093,541
- --------------------------------------------------------------------------------
PRIOR AMOUNT ENCUMBERED FOR (OPTIONAL USE)
THIS CONTRACT 3020/32000
-----------------------------------------------------
$ 3,865,028 ITEM CHAPTER STATUTE FISCAL YEAR
- --------------------------- 5240-001-001(5260) PEND 1994 94/95
TOTAL AMOUNT ENCUMBERED TO
DATE -----------------------------------------------------
OBJECT OF EXPENDITURE (CODE AND TITLE)
$ 958,569 418.14
- --------------------------------------------------------------------------------
I hereby certify upon my own personal T.B.A. NO. B.R. NO.
knowledge that budgeted funds are
available for the period and purpose
of the expenditure stated above.
- --------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER DATE
X /s/ Shirley A. Clark 7/1/94
================================================================================
DEPARTMENT OF GENERAL SERVICES
USE ONLY
Department of General Services
APPROVED
JUL 19 1994
BY /S/ J. B. WILHE
---------------
Ass't. Chief Counsel
STATE OF CALIFORNIA AND 2 Contract No. R92.132
ECLECTIC COMMUNICATIONS, INC. Amendment No. 1
(LEO CHESNEY CENTER)
4. Attachment A, page 5, section 10(a): Reimbursement for general liability
insurance shall not exceed $51,600 for FY 1994/95.
5. Attachment A, page 7, section 17: The Contractor's minimum required
staff and approximate position funding levels for FY 1994/95 is detailed
in Exhibit 1, attached hereto and incorporated herein.
The following paragraph is added as a provision to Attachment A, Scope of
Services:
6. The State will reimburse the Contractor for total allotment costs in FY
1994/95 as detailed in Exhibit 2, attached hereto and incorporated
herein.
The following section contained in the original contract, Attachment B, General
Terms and Conditions are revised to read:
7. Page 1, section 2 entitled AUDITS:
The contracting parties shall be subject to the examinations and audits
for a period of three years after final payment under the contract. The
examination and audit shall be confined to those matters connected with
the performance of the contract including, but not limited to, the costs
of administering the contract.
8. Page 2, section 8 entitled NONDISCRIMINATION CLAUSE (STD. 17A):
During the performance of this contract, Contractor and its
subcontractors shall not unlawfully discriminate against, harass or
allow harassment, against any employee or applicant for employment
because of sex, race, color, ancestry, religious creed, national origin,
physical disability (including HIV and AIDS), mental disability, medical
condition (cancer), age (over 40), marital status, and denial of family
care leave. Contractors and subcontractors shall insure that the
evaluation and treatment of their employees and applicants for
employment are free of such discrimination and harassment. Contractor
and subcontractors shall comply with the provisions of the Fair
Employment and Housing Act (Government Code Section 12900 et seq.) and
the applicable regulations promulgated thereunder (California Code of
Regulations, Title 2, Section 7285.0 et seq.). The applicable
regulations of the Fair Employment and Housing Commission implementing
Government Code Section 12990 (a-f), set forth in Chapter 5 of Division
4 of Title 2 of the California Code of Regulations are incorporated into
this contract by reference and made a part hereof as set forth in full.
Contractor and its subcontractors shall give written notice of their
obligations under this clause to labor organizations with which they
have a collective bargaining or other agreement.
This Contractor shall include the nondiscrimination and compliance
provisions of this clause in all subcontracts to perform work under the
contract.
STATE OF CALIFORNIA AND 3 Contract No. R92.132
ECLECTIC COMMUNICATIONS, INC. Amendment No. 1
(LEO CHESNEY CENTER)
9. Page 9, section 18 entitled REPORTABLE PAYMENT IDENTIFICATION AND
CLASSIFICATION REQUIREMENTS:
Contractor shall comply with State and Federal Reportable Payment
Identification and Classification Requirements by fully completing the
"Vendor Data Record". Contractor understands and agrees that if he/she
does not FULLY COMPLETE the Vendor Data Record, State shall reduce the
total contract amount by thirty-one (31) percent for federal backup
withholding and seven (7) percent for State income tax withholding.
The following paragraphs are added as General Terms and Conditions to the
contract:
10. TAXATION
Pursuant to California Revenue and Taxation Code Section 18806.1, the
Contractor may be subject to a one percent (1%) State income tax
withholding.
11. CORPORATE STATUS CERTIFICATION
If the Contractor is a corporate entity, the person signing on behalf of
the corporation named as Contractor does certify under penalty of
perjury that the corporation is currently in good standing with the
Office of the Secretary of State and is qualified to do business in the
State of California.
12. INDEPENDENT CONTRACTOR CERTIFICATION
All services performed by the Contractor under this contract shall be
construed as an independent Contractor relationship. The Contractor
shall be responsible for withholding all applicable employee taxes.
All other terms and conditions not amended remain in full force and effect.
STATE OF CALIFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91) CDC ELECTRONIC (1/94)
- --------------------------------------------------------------------------------
- -APPROVED BY THE ATTORNEY GENERAL CONTRACT NUMBER AM. NO.
R92.132 2
- --------------------------------------------------------------------------------
TAXPAYER'S FEDERAL EMPLOYER IDENTIFICATION NUMBER
94-2411045
- --------------------------------------------------------------------------------
THIS AGREEMENT, made and entered into this 1ST day of JULY , 19 94 , in the
State of California, by and between State of California, through its duly
elected or appointed, qualified and acting
- --------------------------------------------------------------------------------
TITLE OF OFFICER ACTING FOR STATE AGENCY
Chief, Contract and Audit Management
Branch Department of Corrections, hereafter
called the State, and
- --------------------------------------------------------------------------------
CONTRACTOR'S NAME
ECLECTIC COMMUNICATIONS, INC. (LEO CHESNEY CENTER), hereafter called the
Contractor.
- --------------------------------------------------------------------------------
WITNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed,
does hereby agree to furnish to the State services and materials as follows:
(SET FORTH SERVICE TO BE RENDERED BY CONTRACTOR, AMOUNT TO BE PAID CONTRACTOR,
TIME FOR PERFORMANCE OR COMPLETION, AND ATTACH PLANS AND SPECIFICATIONS, IF
ANY.) Contract R92.132 dated March 1, 1993, which was amended on June 25, 1994
for a community correctional facility and related services is hereby further
amended in order to revise various contract documents; add language to allow for
overtime accrual and post assignment schedules; allow cost adjustments for
fiscal year (FY) 1994/95; and add encumbrances and the related changes for FY
1995/96. The following paragraphs are revised:
1. The following documents referenced on page 2, subparagraphs 1(c) and
1(d) of the original contract are revised: Contractor's Program
Statement (Revised Attachment C; attached hereto and incorporated
herein) and the State's Statement of Work for Private Community
Correctional Facilities dated July, 1994 (by reference is a part of the
contract).
2. Page 1, paragraph 1 of amendment 1: The cumulative total of this
contract through June 30, 1996 shall not exceed Ten Million, One Hundred
Twenty Thousand, Five Hundred Eighty-Two Dollars ($10,120,582) and the
FY breakdown follows:
FY TOTAL AMOUNT
----- -----------
92/93 $ 771,649
93/94 $ 3,093,379
94/95 $ 3,124,424
95/96 $ 3,131,130
-----------
TOTAL: $10,120,582
CONTINUED ON 21 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER.
================================================================================
The provisions on the reverse side hereof constitute a part of this
agreement. IN WITNESS WHEREOF, this agreement has been executed by the parties
hereto, upon the date first above written.
================================================================================
STATE OF CALIFORNIA CONTRACTOR
- --------------------------------------------------------------------------------
AGENCY CONTRACTOR (IF OTHER THAN AN INDIVIDUAL,
STATE WHETHER A CORPORATION,PARTNERSHIP,
ETC.)
Department of Corrections ECLECTIC COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
BY (AUTHORIZED SIGNATURE) BY (AUTHORIZED SIGNATURE)
/s/ Frank E. Renwick /s/ Marvin Wiebe
- --------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING PRINTED NAME AND TITLE OF PERSON SIGNING
FRANK E. RENWICK Marvin Wiebe, VP,
Finance and Administration
- --------------------------------------------------------------------------------
TITLE ADDRESS
1823 Knoll Drive, Ste. 8
Chief, Contract and Audit Ventura, CA 93003 (805) 644-8700
Management Branch
- --------------------------------------------------------------------------------
AMOUNT ENCUMBERED BY THIS PROGRAM/CATEGORY (CODE AND TITLE) FUND TITLE
DOCUMENT SUPPORT PROGRAM 31 GENERAL
30,883 94/95 -------------------------------------------------
$ 3,131,130 95/96 (OPTIONAL USE)
- ------------------------------
PRIOR AMOUNT ENCUMBERED FOR 3020/32000
THIS CONTRACT -------------------------------------------------
ITEM CHAPTER STATUTE FISCAL YEAR
$ 6,958,569.00
- ------------------------------ 5240-001-001(5260) 139 1994 94/95
TOTAL AMOUNT ENCUMBERED TO -------------------------------------------------
DATE OBJECT OF EXPENDITURE (CODE AND TITLE)
$ 6,989,452.00 418.14
- --------------------------------------------------------------------------------
I hereby certify upon my own personal T.B.A. NO. B.R. NO.
knowledge that budgeted funds are
available for the period and purpose
of the expenditure stated above.
- --------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER DATE
X /s/ Shirley A. Clark 6/16/95
================================================================================
DEPARTMENT OF GENERAL SERVICES
USE ONLY
Department of General Services
APPROVED
June 30, 1995
By: /S/ J. B. WIHLE
---------------
THE STATE OF CALIFORNIA & 2 CONTRACT R92.132
ECLECTIC COMMUNICATIONS, INC. AMENDMENT 2
(LEO CHESNEY CENTER)
3. Page 1, paragraph 2 of amendment 1: Effective July 1, 1994, the per diem
rate is increased to $34.39 per participant day and the Contractor will
provide services for as many as 71,370 participant days in FY 1995/96.
4. Page 1, paragraph 3 of amendment 1 now reads: CDC shall reimburse
Contractor monthly in arrears for actual base facility lease costs not
to exceed $484,593 annually in FYs 1994/95 and 1995/96. Contractor shall
submit, with their monthly invoice, a canceled check for actual monthly
lease costs incurred and paid. No addendums or side letters to the
facility lease will be recognized by CDC that does not have prior
written approval by the CCCA Administrator.
5. Page 2, paragraph 4 of amendment 1: Effective July 1, 1994,
reimbursement for general liability insurance shall not exceed $71,247
per FY.
6. Page 2, paragraphs 5 and 6 of amendment 1: The following minimum
staffing requirements and total contract allotments are attached hereto
and incorporated herein:
o EXHIBITS 1 AND 2 - revised FY 1994/95 minimum staffing levels and
total contract allotment: and
o EXHIBITS 1A AND 2B - FY 1995/96 minimum staffing levels and total
contract allotment.
The following paragraphs are added as Scope of Services provisions to the
contract:
7. POST ASSIGNMENTS
The Contractor agrees to schedule staff in accordance with the post
assignment schedule summaries and detail as specified in Exhibits 3
through 3c which are attached hereto and incorporated herein for FYs
1994/95 and 1995/96.
8. EMERGENCY MEDICAL TRANSPORTATION
The State shall reimburse the Contractor for necessary overtime (OT)
related to the transportation and supervision of inmates for emergency
medical care (EMC). Reimbursement will not be made for straight time
staffing cots (which are included in the monthly per diem payments)
unless back-up staff are called in to back-fill open posts caused by the
transportation/supervision of inmates for EMC. Invoices must include the
following:
o Date of EMC service
o Date of HUB institution approval
o Inmate name and CDC number
o Type of EMC
o Signature of CDC's approving agent
o Staff person's regular work hours
o OT hours related to EMC, inmate supervision and/or transportation.
9. EMERGENCY RELEASE FUNDS
Upon release from prison, inmates are entitled to funds to assist with
necessary transportation costs. In the event that release funds are not
received by an inmate prior to the inmates' release date, the Contractor
shall issue a check to the inmate (as authorized by the Parole Agent) on
an emergency basis to cover the release funds. The State shall reimburse
the Contractor for release funds issued on an emergency basis. Invoices
must include a copy of the Release Statement (CDC Form 102) and be
signed by both the Parole Agent authorizing the transaction and the
inmate.
All other terms and conditions not amended remain in full force and effect.
General Terms and Conditions 1 Attachment A
Eclectic Communications, Inc. Contract No. R92.132
(Leo Chesney Center [Live Oak])
SCOPE OF SERVICES
Eclectic Communications, Inc.
(Leo Chesney Center [Live Oak])
Contract No. R92.132
Contractor agrees to provide housing, sustenance, supervision and/or other such
services and accommodations for selected inmates who meet community correctional
facility screening criteria in a 200 bed facility (of which the State is
contracting for 200 beds) operated by the Contractor and named "Leo Chesney
Center (Live Oak)" located at 2800 Apricot, Live Oak, California 95953 in the
Class A Standard Metropolitan Statistical Area designated as "Sacramento".
The State and Contractor mutually agree to the following:
1. FINANCIAL MANAGEMENT HANDBOOK
In the performance of this contract, the Contractor agrees to comply
with the terms and conditions contained in the Financial Management
Handbook (FMH). Revisions to the FMH which do not alter or change the
intent of the program can be made without amending the contract. As
revisions are issued, Contractor agrees to insert the revised pages in
their copy of the FMH, and the revisions become effective on the date
stipulated in the transmittal letter.
2. ORGANIZATION CHART AND DUTY STATEMENTS
Contractor agrees prior to placement of State participants in the
program to prepare and submit to the Community Correctional Center
Administration an up-to-date organization chart and duty statement for
each of the positions utilized to staff the facility.
3. PARTICIPANT DAYS AND RATES
(a) For female participants selected and assigned to the facility by
the State, the Contractor agrees to provide services for up to
the following number of participant days and rates to be
reimbursed by the State:
TOTAL NUMBER PER PARTICIPANT/
FISCAL YEAR OF DAYS PER DAY RATE
1992/93 17,745 $34.36
1993/94 71,175 $34.28
(b) An adjustment to the per diem rate shall be allowed if there is
a change in either the size and/or location of the facility or
in the program. An adjustment to the per diem rate may be
allowed if the State establishes a new rate based on actual
program costs and legislatively approved funding. All charges by
the Contractor will be reported in accordance with the FMH, and
charges based upon the per diem rate will be reported on forms
contained in Appendix B of the FMH.
4. PARTICIPANT RECORDS
(a) The Contractor agrees to maintain a monthly "Register of
Participation" (contained in Appendix B of the FMH) which will
list each participant's name, CDC case file number,
participation period, and other data.
General Terms and Conditions 2 Attachment A
Eclectic Communications, Inc. Contract No. R92.132
(Leo Chesney Center [Live Oak])
The Register of Participation shall be submitted in triplicate
with the Contractor's corresponding "Monthly Invoice" (contained
in Appendix B of the FMH).
(b) Contractor agrees to provide to the State on a daily basis
information regarding arrival and departure of those State
participants in Contractor's program as referenced in the
Statement of Work.
5. REPORTING REQUIREMENTS
Contractor agrees to complete and submit to the State various
standardized case-related and administrative forms and reports which are
to be submitted in such a manner and at such times as shall be
determined by the Parole and Community Services Division.
Contractor agrees to prepare and submit monthly, quarterly and annual
cost reports contained in Appendices B, C, D and E of the FMH.
6. WORK CREW ASSIGNMENTS
Contractor agrees to assign facility participants to work crew
assignments within the facility to offset program expenses related to
grounds and building maintenance, housekeeping and food services.
7. TRAINING
The Contractor shall provide training to its staff in accordance with
the minimum training requirements established by the Board of
Corrections pursuant to Penal Code Section 6035. These minimum training
requirements shall supersede the requirements currently contained in the
Statement of Work and Contractor's Program Statement.
General Terms and Conditions 3 Attachment A
Eclectic Communications, Inc. Contract No. R92.132
(Leo Chesney Center [Live Oak])
8. FACILITY LEASE/USE AND RENOVATION COSTS
(a) The State shall reimburse the Contractor monthly for actual
facility lease/use costs at an amount not to exceed: 1) $39,804
per month from April 1, 1993 through March 31, 1994, and 2)
$41,396 per month effective April 1, 1994 through June 30, 1994.
The fee shall be paid monthly in arrears and shall be reported
in addition to other charges on the Contractor's monthly
invoice. In subsequent months, this fee can be adjusted to
reflect: 1) any adjustments allowed in accordance with the terms
contained herein and in the FMH, and 2) any legislatively
imposed funding considerations.
(b) In the event Contractor's lease expires prior to the expiration
of this contract, the State will pay only for those monthly
lease/use fees negotiated between the State and Contractor in
accordance with the terms and conditions contained in the FMH.
(c) Effective April 1, 1993, facility lease costs can be increased
to include the necessary facility renovation costs, based on the
lowest of those acceptable bids, amortized in accordance with
Section 1433 of the State Administrative Manual for the
following separate amortization periods contained in this
facility's previous contract (number R97.132) which expired
March 31, 1993:
Renovation Monthly Renovation Rate
Description Amortization Rate Reimbursement Period
----------- ----------------- --------------------
1. Original Contract $1,226 8/89 through 7/99
Renovations
2. Renovations for Phase I $331 12/90 through 11/00
(in which average inmate
occupancy is from 101 to
120 per month)
3. Renovations for Phase II $1,694 3/92 through 2/02
(in which average inmate
occupancy is from 121 to
200 per month)
4. Program Development
Cost (Pre-Start-Up
equipment costs for
facility expansion) $6,822 3/1/92 through 2/28/97
General Terms and Conditions 4 Attachment A
Eclectic Communications, Inc. Contract No. R92.132
(Leo Chesney Center [Live Oak])
At the conclusion of the amortization periods, there shall be no further
reimbursements for the renovation costs. Thereafter, the total costs
shall be consistent with the facility lease/use rate specified in
subparagraph 8(a).
(d) In the event of contract termination, the State shall reimburse
the Contractor for any renovation and/or program development
costs remaining on established monthly amortization schedules
specified in subparagraph 7(c). The Contractor agrees that any
supplies and/or equipment acquired through renovation and/or
program development costs will remain State owned property.
Accordingly, the State shall take possession of such supplies
and/or equipment should the contract be terminated or not
renewed.
9. EQUIPMENT REQUEST AND REPLACEMENT FUND PROCEDURES
(a) Contractor shall establish an equipment replacement fund and, on
a monthly basis, place $3,022 in an account insured by an agency
of the federal government. The account will be used to replace
nonexpendable equipment. The Contractor will report quarterly
any changes to the equipment replacement fund on the Statement
of Changes in Equipment Replacement Fund form (Appendix C, CDC
Form 2109 in the FMH).
(b) Contractor agrees to obtain prior written approval before
purchasing any nonexpendable State equipment as defined in the
FMH. The Contractor agrees to solicit at least three competitive
bids on each item for the purchase of nonexpendable equipment
necessary to operate the facility. The bids are to be written on
the Price Quotation Only form (Appendix I of the FMH). These
forms will be forwarded to the Parole and Community Services
Division, Community Correctional Center Administration (CCCA) in
Sacramento.
(c) Contractor's accepted bid(s) cannot exceed State procurement
prices for similar nonexpendable equipment as allotted by CCCA,
and should be awarded to the vendor submitting the lowest
responsible bid. Subject to prior CCCA approval, the Contractor
MAY accept a higher bid(s) if the bidder is a minority, women or
disabled veteran business enterprise (M/W/DVBE), and will
therefore facilitate the Contractor's compliance with the
State's M/W/DVBE participation program requirements. The
Contractor MUST award a bid(s) to any M/W/DVBE(s) who have been
listed on the State's "Mandatory M/W/DVBE Participation
Worksheet" to meet participation compliance goals. Substitution
of such identified M/W/DVBE(s) is subject to prior CCCA
approval.
(d) The nonexpendable equipment purchased will remain State property
and will be decaled accordingly. Nonexpendable equipment costs
will not be reimbursed to the Contractor until a Stock Received
Report (Appendix I, Std. Form 106 in the FMH) and a legible copy
of the sales receipt, which identifies the type and kind of
equipment purchased, is received and approved by CCCA.
General Terms and Conditions 5 Attachment A
Eclectic Communications, Inc. Contract No. R92.132
(Leo Chesney Center [Live Oak])
(e) On an annual basis, Contractor will complete an equipment
inventory which will include nonexpendable and expendable
equipment. This annual report shall be submitted each July to
the Parole & Community Services Division, CCCA in Sacramento.
(f) At the end of the contract period, or in the event of contract
termination, a CDC representative shall conduct a final physical
inventory of Contractor's nonexpendable and expendable
equipment. Contractor shall be held responsible for any
discrepancies arising as a result of the final audit.
10. INSURANCE REQUIREMENTS AND REIMBURSEMENT RATES
(a) State shall reimburse the Contractor in arrears for the actual
cost of general liability insurance only as specified in the
FMH. The reimbursement of automobile and other insurance costs
are included in the per diem rate. Reimbursement for general
liability insurance shall not exceed $12,300 for the 1992/93
fiscal year (FY) and $50,200 for the 1993/94 FY. A copy of the
bill from the Contractor's insurance carrier clearly stating the
term, facility location, type of coverage and cost must
accompany the invoice submitted to the State for reimbursement.
(b) Contractor shall furnish to the State a certificate of insurance
stating that there is commercial general and/or automobile
liability insurance presently in effect for the Contractor of
not less than $1,000,000 per occurrence for bodily injury and
property damage liability combined and automobile insurance of
not less than $500,000 per occurrence.
(c) The certificate of insurance must include the following
provisions:
The insurer will not cancel the insured's coverage
without 30 days prior written notice to the State; and
The State of California, its officers, agents, employees
and servants are included as additional insured, but
only insofar as the operations under this contract are
concerned.
(d) Contractor agrees that the insurance herein provided for shall
be in effect at all times during the term of this contract. In
the event said insurance coverage expires at any time during the
term of this contract, Contractor agrees to provide at least 30
days prior to said expiration date, a new certificate of
insurance evidencing insurance coverage as provided for herein
for not less than the remainder of the term of the contract, or
for a period of not less than one year. New certificates of
insurance are subject to the approval
General Terms and Conditions 6 Attachment A
Eclectic Communications, Inc. Contract No. R92.132
(Leo Chesney Center [Live Oak])
of the Department of General Services, and Contractor agrees
that no work or services shall be performed prior to the giving
of such approval. In the event Contractor fails to keep in
effect at all times insurance coverage as herein provided, the
State may, in addition to any other remedies it may have,
terminate this contract upon the occurrence of such event.
11. FIRE CLEARANCE REPORT
(a) Pursuant to Section 13143.6 of the California Health and Safety
Code, the State requires the appropriate fire clearance report
from the State Fire Marshal's Office or their designated local
jurisdiction verifying that the Contractor's facility conforms
to all existing life and safety requirements of the State Fire
Advisory Board.
(b) The Contractor agrees that if the resultant report of the State
Fire Marshall or their designated local jurisdiction reveals
that the Contractor's facility does not meet such life and
safety requirements or if during the period of this agreement
Contractor's facility does not meet such requirements, the State
may immediately terminate this contract. The Contractor further
agrees to inform the State of any action intended by the
Contractor during the period of this contract which may have the
effect of necessitating the issuance of a new fire clearance
report. Fire clearances issued by the State Fire Marshal's
office are good for one year and must be renewed annually.
12. PLACEMENT OF PARTICIPANTS
Notwithstanding any other requirements, the State shall have no
obligation under this contract to assign State participants to the
facility in the event Contractor fails to obtain the necessary local use
permit, State Fire Marshal clearance, or any other government approval
required to operate the described facility for the purposes stated
herein. This contract can be immediately terminated for Contractor
failure to secure any requirements contained herein.
13. INMATE TRUST FUND
The Contractor agrees to establish and administer an inmate trust fund
(ITF). The ITF must be held as a separate account; and commingling the
ITF with other accounts is in direct violation of the contract. Inmate
work positions will be provided and paid for by the Contractor from the
Contractor's ITF account. The Contractor shall submit a monthly invoice
to receive reimbursement from the State for payments made to inmates.
The invoice shall include a brief job description for each inmate job
assignment, hours worked, rate of pay and total amount paid to each
inmate. Pay scales as outlined in CDC's Departmental Operations Manual,
Section 51120, are determined by skill
General Terms and Conditions 7 Attachment A
Eclectic Communications, Inc. Contract No. R92.132
(Leo Chesney Center [Live Oak])
levels ranging from one to five and are attached hereto and incorporated
herein (Exhibit 1). Inmate job descriptions and pay levels can be
changed only upon CDC's approval. The Contractor shall maintain
accounting records in accordance with the FMH and shall establish
adequate internal controls over the ITF.
14. TIME KEEPING SYSTEM
The Contractor agrees to establish a positive time keeping system which
includes time records of all inmates who worked. The Contractor further
agrees that inmate time records shall be maintained by the Contractor's
work crew supervisor. The time records must be submitted to a designated
CDC facility representative for approval of payment.
15. PRE-RELEASE PLANNING
The Contractor agrees that a pre-release program will be provided to
inmates based on available budgeted resources. This requirement shall
supersede the requirements currently contained in the Statement of Work
and Contractor's Program Statement.
16. INMATE WELFARE FUND
The Contractor agrees to operate the Inmate Welfare Fund as a trust for
the benefit and welfare of inmates under the jurisdiction of CDC in
accordance with DOM Section 23010.
17. MINIMUM REQUIRED STAFFING
The Contractor's minimum required staff and position funding levels for
FYs 1992/93 and 1993/94 are detailed in Exhibits 2 and 3 (attached
hereto and incorporated herein).
GENERAL TERMS AND CONDITIONS
Eclectic Communications, Inc.
(Leo Chesney Center [Live Oak])
Contract No. R92.132
1. INVOICING AND PAYMENT
For services satisfactorily rendered and upon receipt and approval of
the invoices and forms contained in Appendix B of the Financial
Management Handbook (FMH), the State agrees to compensate the Contractor
in accordance with the rates specified in the Scope of Services
(Attachment A).
Invoices and forms are to include the contract number and be submitted
in triplicate not more frequently than monthly in arrears to the
California Department of Corrections, Accounting Services, P. O. Box
942883, Sacramento, CA 94283-0001.
Payment will be made in accordance with and within the time specified in
Government Code Section 926.17.
The State's monetary obligations under this contract are contingent upon
and subject to the availability of funds appropriated each fiscal year
for this contract.
2. AUDITS
The contracting parties shall be subject to the examination and audit by
the State Auditor General for a period of three years after final
payment under the contract in accordance with Government Code Section
10532. The examination and audit shall be confined to those matters
connected with the performance of the contract including, but not
limited to, the costs of administering the contract.
3. HIRING CONSIDERATIONS
If the contract amount is in excess of $200,000, the Contractor shall be
required to give priority consideration in filling vacancies in
positions funded by the contract to qualified recipients of aid under
Welfare and Institutions Code Section 11200.
4. BACKGROUND CHECKS
The State reserves the right to conduct a background check on the
Contractor and/or the Contractor's personnel as the State deems
necessary prior to award or during the term of the contract. The State
further reserves the right to terminate the contract should a threat to
security be determined.
Scope of Services 2 Attachment B
Eclectic Communications, Inc. Contract No. R92.132
(Leo Chesney Center [Live Oak])
5. MINORITY, WOMEN AND DISABLED VETERANS BUSINESS ENTERPRISE (M/W/DVBE)
CONDITIONS
To the best of the Contractor's ability, Contractor shall fulfill
his/her obligations in dispensing that portion of the contract amount to
the M/W/DVBEs as identified in the reply to the "Participation by
M/W/DVBE Policy Requirements." Said reply by reference is a part of this
contract and is on file and available for review Monday through Friday
between the hours of 8:00 a.m. and 5:00 p.m. at the following address:
Department of Corrections Contract Services Section 1515 S Street, Room
125-S Sacramento, CA 95814
Contractor agrees that the State or its delegate will have the right to
review, obtain and copy all records pertaining to performance of the
contract. Contractor agrees to provide the State or its delegate with
any relevant information requested and shall permit the State or its
delegate access to its premises, upon reasonable notice, during normal
business hours for the purpose of interviewing employees and inspecting
and copying such records, accounts, and other material that may be
relevant to a matter under investigation. Contractor further agrees to
maintain such records for a period of three years after final payment
under the contract.
6. DISPUTE CLAUSE
The parties hereto mutually agree that the resolution of any claims or
disputes arising under this contract shall be resolved pursuant to the
provisions of the California Department of Corrections (CDC) Operations
Manual (DOM).
7. NATIONAL LABOR RELATIONS BOARD CERTIFICATION
Contractor by signing this contract does swear under penalty of perjury
that no more than one final unappealable finding of contempt of court by
a federal court has been issued against Contractor within the
immediately preceding two-year period because of Contractor's failure to
comply with an order of a federal court which ordered the Contractor to
comply with an order of the National Labor Relations Board (Public
Contract Code Section 10296).
8. NONDISCRIMINATION CLAUSE (STD. 17A)
During the performance of this contract, Contractor and its
subcontractors shall not unlawfully discriminate against any employee or
applicant for employment because of race, religion, color, national
origin, ancestry, physical handicap, medical condition, marital status,
age (over 40) or sex. Contractors and subcontractors shall insure that
the evaluation and treatment of their employees and applicants for
employment are free of such discrimination. Contractors and subcontracts
shall comply with the provisions of the Fair Employment and Housing Act
(Government Code Section 12900 et seq.) and the applicable regulations
promulgated thereunder (California Code of Regulations, Title 2, Section
7285.0 et seq.). The applicable regulations of the Fair Employment and
Housing Commission implementing Government Code Section 12990, set forth
in Chapter 5 of Division 4 of Title 2 of the California Code of
Regulations are incorporated into this contract by reference and made a
part hereof as set forth in full. Contractor and its subcontractors
shall give written notice of their obligations under this clause to
labor organizations with which they have a collective bargaining or
other agreement. This Contractor shall include the nondiscrimination and
compliance provisions of this clause in all subcontracts to perform work
under the contract.
Scope of Services 3 Attachment B
Eclectic Communications, Inc. Contract No. R92.132
(Leo Chesney Center [Live Oak])
9. DRUG FREE WORKPLACE CERTIFICATION
Contractor shall comply with all provisions of the Drug Free Workplace
Certification.
10. STATEMENT OF COMPLIANCE
The Contractor certifies under penalty of perjury under the laws of the
State of California that he/she has, unless exempted, complied with the
nondiscrimination program requirements of Government Code Section 12990
and Title 2, California Code of Regulations, Section 8103.
11. EMPLOYMENT OF EX-OFFENDERS
Contractor agrees that it will not either directly, or on a subcontract
basis, employ in connection with this contract:
(a) Ex-offenders on active parole or probation;
(b) Ex-offenders at any time if they are required to register as a
sex offender pursuant to Penal Code Section 290 or if such
ex-offender has an offense history involving a "violent felony"
as defined in subparagraph (c) of Section 667.5 of the Penal
Code; or
(c) Any ex-felon in a position which provides direct custody
supervision of inmates.
Ex-offenders who can provide written evidence of having satisfactorily
completed parole or probation may be considered for employment by
Contractor subject to the following limitations:
Scope of Services 4 Attachment B
Eclectic Communications, Inc. Contract No. R92.132
(Leo Chesney Center [Live Oak])
(a) Contractor shall obtain the prior written approval; to employ
any such ex-offender from the Director of CDC; and
(b) Each such ex-offender whose assigned duties are to involve
administrative or policy decision-making, accounting,
procurement, cashiering, auditing, or any other business-related
administrative function shall be fully bonded to cover any
potential loss to the State or Contractor.
12. CONFLICT OF INTEREST
An organization will not be awarded a contract if financial interests
are held by departmental employees (or their families) when said
employees are in a decision-making capacity with respect to this
program. Likewise, the contracting agency officials and employees shall
also avoid actions resulting in or creating an appearance of:
(a) Using an official position for private gain;
(b) Giving preferential treatment to any particular person;
(c) Losing independence or impartiality;
(d) Making a decision outside official channels; and
(e) Affecting adversely the confidence of the public or local
officials in the integrity of the program.
Contracts will not be awarded to a current officer or employee of the
State. Nor will a contract be awarded to a former State employee for two
years if that employee had any part of the decision-making process
relevant to the contract, or for one year if that employee had any part
of the decision-making process relevant to the contract within the
twelve-month period prior to his or her leaving State service.
Contractor agrees that its agents, family or business partners cannot
receive or use this contract with the intent to illegally or unethically
gain personal financial benefit.
13. COMPLIANCE, MONITORING AND CORRECTIVE ACTION PROVISIONS
The State and Contractor agree to the following contract compliance,
monitoring and corrective action provisions:
(a) If the Contractor is not in compliance with a requirement of the
contract, the State can serve the Contractor with a written
Notice of Contract Compliance (NCC) and require the Contractor
to take corrective action by a specific date. This notice can be
provided by either the Community Correctional Centers
Administration (CCCA) Administrator or the Parole Agent III
responsible for the Contractor's performance under this
contract.
Scope of Services 5 Attachment B
Eclectic Communications, Inc. Contract No. R92.132
(Leo Chesney Center [Live Oak])
(b) If the noncompliance issue relates to the: (1) security of the
facility; and/or (2) health and/or safety of inmates, facility
staff or the community, the date for the corrective action may
be the same day as the notice.
(c) When the Contractor receives a NNC, the Contractor shall take
corrective action by the date specified or request a date
extension and present a plan of corrective action. This request
and action plan shall be submitted in writing to the CCCA
Administrator.
(d) The CCCA Administrator shall respond in writing to the
Contractor's request and action plan within 15 days of receipt.
However, the CCCA Administrator can verbally reject the
Contractor's request and plan at any time if the noncompliance
issue relates to the areas listed in subparagraph 13(b).
(e) If the Contractor fails to take corrective action by the
deadline approved by the CCCA Administrator, the State shall
impose a one percent (1%) penalty against the total monthly
invoice for the month in which corrective action was to have
been taken.
(f) If the Contractor fails to take corrective action by 30 days
following the deadline approved by the CCCA Administrator, the
State shall impose a two percent (2%) penalty against the total
monthly invoice for the month in which corrective action was to
have been taken.
(g) For each additional successive 30 day period the Contractor
fails to take corrective action following the approved deadline,
the penalty shall be increased to twice that of the last penalty
assessed.
(h) Contractor may appeal any action(s) taken by the provisions in
subparagraphs 13(a) through (g) in accordance with the appeal
procedures outlined in CDC's DOM.
14. FACILITY LEASE AGREEMENT
Prior to the effective date of the contract, the facility lease must be
signed by the Contractor and facility owner and reviewed by the CCCA
Administrator. In order to protect the State's interest, the facility
lease between the Contractor and facility owner shall specifically
enumerate the following:
Scope of Services 6 Attachment B
Eclectic Communications, Inc. Contract No. R92.132
(Leo Chesney Center [Live Oak])
(a) The provisions contained in the General Terms and Conditions,
subparagraphs 15(a), 16(b), 16(b)(1) through (4) and 16(d) of
this contract.
(b) The lease shall remain in full force and effect for the entire
term date of the contract. Further, there shall be no
modifications made to the lease agreement without the prior
written approval of the CCCA Administrator.
(c) Unless precluded by the lease, in the event the contract is
terminated under the provisions contained in subparagraph 15.(a)
and the State elects to exercise the option contained in
subparagraph 16.(b), the lessor will assign the lease to the
State, or replacement lessee approved by the State.
Any lease under which the facility is presently operating which does not
contain the foregoing language shall be amended at the time of renewal
to include said language.
The State's review of the facility lease agreement is limited to
ensuring that the above provisions are included. It is not the intent of
the State to review and/or approve the facility lease as regards any
other provisions contained herein.
15. CONTRACT TERMINATION CONDITIONS AND PROCEDURES
(a) The State may terminate performance of work under this contract
if the Contractor substantially fails to perform and/or meet the
requirements of this contract.
(b) Contractor may submit a written request to terminate this
contract only if the State should substantially fail to perform
its responsibilities as provided herein.
(c) The terminating party shall terminate this contract by
delivering, either in person or by registered mail, a Notice of
Termination (NOT) that specifies the reasons for termination and
the effective date. Such effective date of contract termination
shall be at least 30 calendar days after the receiving party's
receipt of the NOT from the terminating party.
(d) This contract may be suspended or cancelled, without notice at
the option of the Contractor, if the Contractor or State's
premises or equipment are destroyed by fire or other
catastrophe, or so substantially damaged that it is impractical
to continue service, or in the event the Contractor is unable to
render services as a result of any governmental authority.
Scope of Services 7 Attachment B
Eclectic Communications, Inc. Contract No. R92.132
(Leo Chesney Center [Live Oak])
16. OBLIGATIONS UPON CONTRACT TERMINATION
If the contract is terminated as herein provided, the State shall give
written notice to Contractor of State's election of one of the following
options:
(a) STATE'S FIRST OPTION: State will not exercise any option to
extend or renew the existing contract and shall reimburse the
Contractor for lease costs as stated in the contract.
(b) STATE'S SECOND OPTION: If termination is pursuant to
subparagraph 15.(a) the State may continue operation of the
facility and shall locate a replacement lessee for the facility.
The State shall give 30 days written notice to the facility
owner of the State's intent to exercise this option. To
facilitate this option, the Contractor and State mutually agree
to the following:
(1) Contractor, the State, the facility owner, and each of
them individually, shall make a good faith and
reasonable effort to reduce or eliminate all further
facility lease costs required to be made pursuant to the
terms and conditions of the facility lease.
Notwithstanding the nonperformance of any of the parties
under this subparagraph, all other parties have the
responsibility to perform under this subparagraph.
(2) Upon receipt of a notice to locate a replacement lessee,
the Contractor and/or facility owner, either separately
or jointly, will immediately submit a written plan of
action intended to follow in locating a replacement
lessee.
(3) The CCCA Administrator shall review the plan(s)
submitted by Contractor and/or facility owner. If the
CCCA Administrator concludes that the plan(s) submitted
are in any manner deficient, Contractor and/or facility
owner shall within 15 business days specifically
identify in writing what additional or other action
Contractor and/or facility owner considers necessary to
take in order to locate a replacement lessee suitable to
the State.
(4) State shall continue reimbursement of facility lease
costs to the facility owner and satisfy the facility
lease costs during the period the parties are attempting
to locate a replacement lessee. If a replacement lessee
is located, the facility owner shall thereafter remit to
State all payment received by the facility owner from
replacement lessee. State shall continue to make all
facility lease costs as herein provided.
Scope of Services 8 Attachment B
Eclectic Communications, Inc. Contract No. R92.132
(Leo Chesney Center [Live Oak])
(c) Contractor's obligations upon contract termination. After
receipt of a NOT and unless otherwise directed by the State, the
Contractor shall immediately proceed with the following
obligations:
(1) Stop work as specified in the NOT.
(2) Neither establish nor implement any further subcontracts
nor place any further order for materials or services
except as necessary to complete the continued portion of
the contract.
(3) Terminate all subcontracts to the extent that they
relate to the work terminated.
(4) Take any action that may be necessary, or that the State
may direct, for the protection and preservation of the
property related to this contract that is in possession
or control of the Contractor and which the State has or
may acquire an interest.
(5) Settle all outstanding liabilities and termination
settlement proposals arising from terminating
subcontracts. Said settlement to be reviewed and
accepted by the State before execution.
(6) Complete performance of the work not terminated,
directed or authorized by the State.
(d) If Contractor ceases operation of the facility, the
State will have first priority to exercise the options
of this paragraph 16.
(e) If the contract is terminated under the provisions of
subparagraph 15.(a), the State may, after exhausting the
option provided in subparagraph 16.(b), assume the
relevant debts of the Contractor in respect to this
contract, and operate the facility. Upon review and
approval of CDC, the Contractor shall then transfer to
the State possession of all equipment and supplies
purchased with State funds under this contract.
17. OFFSET CREDIT PARTICIPATION
The State of California, in cooperation with California industry, has
developed a program whereby the State of California intends to assign
the offset credits associated with the foreign content of their
purchases to a California company which has offset commitments in that
foreign country, for use as full or partial satisfaction of the
California company's offset obligation in that country. The supplier
agrees to support the California company in its claim for offset credit
and provide assistance to the California company, provided that the
supplier does not plan to utilize the credits for its own benefits.
Scope of Services 9 Attachment B
Eclectic Communications, Inc. Contract No. R92.132
(Leo Chesney Center [Live Oak])
18. REPORTABLE PAYMENT IDENTIFICATION AND CLASSIFICATION REQUIREMENTS
Contractor shall comply with State and Federal Reportable Payment
Identification and Classification Requirements by fully completing the
"Vendor Data Record". Contractor understands and agrees that if he/she
does not FULLY COMPLETE the Vendor Data Record, State shall reduce the
total contract amount by twenty (20) percent for federal backup
withholding and seven (7) percent for State income tax withholding.
Attachment C
(1 of 8 page)
CONTRACTOR'S PROGRAM STATEMENT
Eclectic Communications, Inc.
(Leo Chesney Center [Live Oak])
Contract No. R92.132
LIVE OAK PROGRAM STATEMENT
GENERAL SUMMARY:
The program will be individualized to the greatest extent possible while
including common essentials which are necessary for program operations and
community re-integration of all offenders. Because of the short length of stay
at the facility, the program will give primary emphasis to educational needs,
the acquisition of G.E.D.'s, and to life skills training. Secondary priority
will be given to vocational training programs. The program plans to provide the
following services: drug and alcohol counseling/testing, individual and family
counseling, vocational evaluation and training, life skills training,
educational assessment and instruction, leisure activities, work therapy,
parenting skills training, and enhancement seminars.
A. DRUG AND ALCOHOL COUNSELING/TESTING:
Residents who have a substance abuse history will receive specialized
counseling by attending weekly Narcotics Anonymous or Alcoholics
Anonymous meetings at the facility. The facility's Correctional
Counselor will also be available for individual and group sessions each
week. In an effort to help support a drug-free lifestyle, urine samples
will be collected in accordance with CDC policy by facility staff. Both
random and scheduled testing will occur. Testing will be performed by
the same sex only and urine samples will be kept secured at all times.
Any resident who "stalls" on a test will be subject to disciplinary
action. A "stall" will be treated as a positive urinalysis and will
result in disciplinary action.
B. INDIVIDUAL AND FAMILY COUNSELING
The program's Correctional Counselor, together with any other
appropriately trained and qualified staff, will provide individual and
family counseling as required. Since program staff are not expected to
be trained psychotherapists, counseling will be limited to problem
resolution in the facility, general guidance, and preparation for
release. As appropriate, staff will be available to provide small group
counseling to a resident and family members. Again, the focus of these
sessions will be problem resolution and preparation for release.
The Correctional Counselor will also be responsible for providing the
initial orientation and developing a program plan for each arriving
resident.
C. VOCATIONAL EVALUATION AND TRAINING:
Providing marketable job skills for inmates is of paramount importance.
The Vocational Coordinator will work with the program's administrators
to insure that job assignments will either train in a vocational skill
or train in an educational program subcomponent. The vocational
instruction team will be comprised of the food service staff, the
Maintenance Supervisor, the Vocational Coordinator, volunteers, and the
Correctional Counselor. Every aspect of the resident's stay in the RTC
will be considered an opportunity for growth, education, and training.
Consequently, work assignments and activities supervised by community
program monitors will be governed with these concepts in mind. Residents
will be evaluated by the vocational staff in an effort to match
residents' interests and aptitude with various vocational programs.
Apprenticed vocational training is proposed in the following areas:
computer operations, culinary arts, general maintenance, office business
machines, horticulture, and cosmetology.
The State of California, Division of Apprenticeship Standards, offers
vocational training courses in conjunction with the Community College
System. Typically, the Community College System provides and compensates
the instructor while E.C.I. is responsible for necessary programmatic
equipment and materials. Advantages of this linkage include quality
instruction at a nominal cost (materials, etc.) and some revenue
generation based on hours of attendance in a State-apprenticed course.
This revenue will be used for program enrichment.
1. COMPUTER OPERATIONS:
Automation is becoming more a part of our everyday life and many
positions offered today require a familiarity with and a working
knowledge of computers.
The purpose of a computer operations course is two-fold: 1) to
acquaint all participants with what a computer can and cannot do
and with a variety of business and personal applications; and 2)
to offer basic computer training, culminating with a segment on
programming.
Given the relatively short resident stays, the course will be
highly concentrated. Therefore, our major focal points will be
operational procedures and word processing.
The program may be apprenticed and it is anticipated that some
of the residents will continue their computer apprenticeship in
the community upon release.
2. CULINARY ARTS:
This course will provide residents with the basic skills of
cooking and baking. Classes of 12 to 16 residents will be formed
and given an introduction to basic baking utilizing classroom
instruction and on-the-job- training in the bake shop. Most
residents will progress to the next phase and learn basic
cooking skills, again utilizing classroom instruction and
on-the-job training.
Residents completing the Culinary Course will have learned the
basic skills of baking and cooking and should be qualified for
fry cook employment in restaurants or institutional food service
operations.
3. GENERAL MAINTENANCE
This course will teach skills necessary to maintain buildings
and grounds. The course work for the first month will include
the following three part overview:
a. Introduction - 4 hours
(1) Orientation and Objectives
(2) Classroom Policies and Procedures
(3) Shop Safety - Rules and Procedures
(4) Use and Care of Tools
b. Preventative Maintenance and Repairs - 24 hours
(1) Use of Maintenance Manuals and Parts Identification
(2) Use of Parts Catalogs and Purchasing
(3) Shop Housekeeping and Personal Work Habits
c. Public Relations - 2 hours
(1) Complaints and Service Calls
(2) Professional Work Attitude
(3) Professional Appearance and Hygiene
Following this overview, course work will focus on the following
specific skill areas:
a. Plumbing - 36 hours
(1) Use and Care of Tools and Equipment
(2) Materials: Copper, Galvanized Pipe, Blackpipe,
ABS and PVC Tubing
(3) Fabrication and Installation Measuring - Cutting
and Connecting
(4) Threading, Sweating and Cementing
(5) Installation of Fixtures
(6) Trouble Shooting and Fixtures
(7) Local Plumbing Codes and Regulations
b. Blueprint Reading - 24 hours
(1) Construction and Electrical Symbols
(2) Electrical Schematics
(3) Mechanical Drawing and Interpretation
c. Carpentry and Construction Techniques - 36 hours
(1) Use and Care of Power and Hand Tools
(2) Materials: Wood, Sheet Rock, Roofing, Siding
(3) Fastening Material: Nails, Screws, and Hardware
(4) General Construction and Framing
(5) Inside Finish Work
d. Electrical - 36 hours
(1) Safety Precautions
(2) Local Electrical Codes and Regulations
(3) Use and Care of Tools and Equipment
(4) Basic Electricity
(5) Materials: Wire, Fittings, Conduit, Boxes
and Fixtures
(6) Installation: Breaker Panels, Wiring, Hardware
(7) Trouble Shooting
Students who elect to be in this vocational program will receive
on-the-job training by providing support services to the
facility's maintenance staff.
Since some facility maintenance and repair projects will be
beyond the skills and abilities of most students, the course
work will give special emphasis to light maintenance,
housekeeping, and grounds keeping. As will most of the proposed
vocational programs, this training will be particularly helpful
in providing sufficient numbers of trained individuals to insure
a functional facility.
4. OFFICE BUSINESS MACHINES:
An office business machines course will be established to teach
residents the basic skills necessary for operating the business
machines commonly found in today's office environment. Specific
instruction will be given in the use of an electric typewriter,
10 key calculator, copy machine, and dictaphone. Typing
instruction and time for practice will be given to improve
typing skills, speed and accuracy. 10 key calculator training
will also include instruction in the "touch" system and in
increasing speed and accuracy.
As time permits, supplementary instruction in the proper
formating of a business letter, the efficient use of a
dictionary to check spelling, and basic grammar rules will also
be given. Students will be encouraged to
build on this instruction by entering the computer operations
class. Since the computer class will focus on word processing,
it should be a natural adjunct to this course's electric
typewriter instruction. Where appropriate, some students will
assist the facility's administrative office as part of their
instructional program. Their assistance will provide valuable
help to the administrative staff in discharging their duties.
5. HORTICULTURE:
This course will expose participants to a variety of
horticultural related trades including cultivation of fruits and
vegetables, flowers, and plants. Specialized instruction in
greens-keeping and landscaping is also anticipated. Fruits and
vegetables grown by the program will be used to supplement
program food supplies. A greenhouse will be constructed by the
General Maintenance class and will be used to cultivate plants
requiring controlled temperature and humidity.
This course will also be apprenticed and will prepare students
for potential employment at nurseries, tree farms, golf course,
etc.
6. BEAUTICIAN/COSMETOLOGIST:
This course will teach basic skills used in the operation of a
beauty parlor. Specific instruction will be given in cutting and
washing hair, permanents, hair styling, manicures, and the
proper application and use of cosmetics.
Since the facility will be home to at least 100 female
residents, it is anticipated that students in this course will
provide hair cutting and styling services to these residents.
The course will thus serve a dual purpose of meeting the hair
cutting needs of the facility and providing a training
opportunity for students.
D. LIFE SKILLS TRAINING:
In addition to vocational training and counseling, the Vocational
Coordinator will conduct job readiness classes covering interviewing,
supervisor/subordinate relations, resume writing, appearance and
hygiene, personal work habits, and work attitude. He will also conduct
general life skills classes covering personal hygiene, establishing
credit, health care access, budgeting, opening checking accounts,
balancing monthly statements, writing checks, making change, using
public transportation, basic nutrition, and time management
E. EDUCATIONAL ASSESSMENT AND INSTRUCTION:
An individualized educational assessment will be completed on each
resident to determine the nature and scope of her educational needs.
Every effort will be made to focus the educational instruction on a
vocational subcomponent. Depending on an individual's needs, the
educational program could range from remedial reading to G.E.D.
preparation. Structured classroom instruction will be utilized when
warranted by a sufficient number of participants. Individual instruction
will be performed by the Educational Coordinator, inmate tutors, and
community volunteers. Under the auspices of the Community College
System, college level courses are also proposed.
F. LEISURE ACTIVITIES:
The Recreational Coordinator is responsible for the development and
supervision of leisure time activities. Emphasis on group and individual
participation will lead to a wide variety of leisure time opportunities.
Group activities such as jazzercise, soccer, softball, field hockey, and
volleyball will be complemented with individual activities such as
theater, music, art, literature, writing courses, etc. Religious
services and activities will be available to meet spiritual needs. These
will be conducted by volunteers form local religious groups.
Participation will be voluntary.
G. WORK THERAPY:
A list of jobs and work assignments related to facility maintenance and
grounds-keeping will be created. These tasks will include laundry,
gardening, painting, food services, cleaning, building maintenance, etc.
The list will be reviewed monthly and updated if necessary. A time
schedule listing the day, week, and month for each task will be
established. The workboards will be given to each staff member assigned
the task of supervising resident work. A master workboard will be kept
in Control. Each facility head count will verify the presence and
location of the resident and the work activity she is involved in. After
a job is completed, the supervising staff member will rate the
performance of the resident. This rating will earn the resident points
which can be exchanged for additional leisure activities.
H. PARENTING SKILLS TRAINING:
A curriculum covering parenting skills will be developed by E.C.I.
facility staff under the supervision of the Educational Coordinator. The
class will provide instruction on setting limits, discipline,
communication skills, proper diets, hygiene, etc. Participation by
volunteer instructors from the community will be encouraged. Where
practicable, First Aid and CPR training will be included as part of the
course.
I. ENHANCEMENT SEMINARS:
On a regular basis, outside community speakers (authors, historians,
sociologists) will be invited to make presentations to the residents on
a variety of topics including health issues, current events, consumer
affairs, etc. The program will be coordinated by residents under the
supervision of the Vocational Coordinator. All speakers will present on
a volunteer basis.
Revised Attachment C
Contract R92.132(A2)
(1 of 9 pages)
ECLECTIC COMMUNICATIONS, INC.
(LEO CHESNEY CENTER)
CONTRACTOR'S PROGRAM STATEMENT
(REVISED NOVEMBER, 1994)
LCC Program (1994)
GENERAL SUMMARY:
This program is individualized to the greatest extent possible while including
common essentials which are necessary for program operation and community
re-integration of all offenders. Because of the short length of stay at the
facility, the program give primary emphasis to educational needs, the
acquisition of G.E.D. certificates, and to life skills training.
Secondary priority is given to vocational training programs.
The program provides the following services: educational assessment and
instruction (ABE and GED), leisure activities, life skills training
(pre-release, Breaking Barriers), and work therapy.
ECI/LCC program objectives are to provide the inmates with viable services in
preparation for community re-integration while maintaining them in a secure
facility environment. These programs include but are not limited to:
- - Orientation
- - Counseling (AA, NA, Group, Individual, Family, and MRT)
- - Basic Education
- - Recreation Programs (Volleyball, Basketball, Baseball)
- - Religious Services (various denominations)
- - Culinary Arts
- - Community Work Crews
- - Pre-Release Program
- - Inmate Work Training Incentive Programs
Work assignments and activities either train in a vocational skill or train in
an educational program sub-component or augment existing skills. Work
assignments supervised by staff are conducted with these concepts in mind.
Providing marketable job skills for inmates is of paramount importance.
Certified vocational training is offered in general maintenance, horticulture,
culinary arts, and computer operation.
PRE-RELEASE PLANNING
A monthly pre-release program is offered to inmates. The goal of this three week
program is to develop the life skills needed for success on parole. Breaking
Barriers occupies a portion of pre-release and stresses the development of self
awareness, self esteem, accountability, goal setting, positive communication
techniques, and other ego development skills.
The remainder of the program provides specific training and information and
fosters the development of survival skills which include health issues, consumer
issues, employability skills, money management, community resources, family and
LCC Program (1994)
Page 2
social interactions, parole resources, job search (which includes resume
writing). Training is provided by speakers from outside agencies, videotapes,
and the educational staff. All graduates receive a certificate of achievement
upon completing the course. All inmates in the ECI/LCC program may attend the
Pre-Release Program offered at the facility.
WORK INCENTIVE
ECI/LCC complies with CDC's Inmate Work Incentive Program by maintaining records
for all inmates who perform work assignments. These time records are submitted
for approval to the CDC administrator prior to receiving payment.
COMMUNITY SERVICE
The main objective of ECI/LCC is to increase the rate of the inmates' successful
reintegration into society. To achieve this objective LCC actively solicits
community service projects for inmate participation. LCC and the Public Service
Agency ensure the safety of the inmates when performing public service
assignments. All community service projects have prior CDC approval. The
appropriate level of security during community service projects is maintained to
protect the community, staff and inmates. The work crew supervisor is equipped
with a two-way radio to maintain contact with LCC and local law enforcement.
EDUCATIONAL PROGRAMS
The education program is managed by staff who meet the credential standards. The
education program provides inmates with opportunities to continue with their
formal education- with vocational evaluation and training, and with a
pre-release program that helps them prepare to re-enter the community. Classroom
space is properly lighted and well ventilated.
Each inmate is given the TABE test upon her arrival to determine her eligibility
for education programs. The GED program is offered to all inmates who score
above 7.0 on the TABE test. In class they work toward passing the GED exam and
acquiring the GED certificate. An Adult Basic Education (ABE) program is offered
to inmates who test below 6.0 on the TABE test. ABE certificates may be earned
at three levels.
RELIGIOUS PROGRAMS
A variety of counseling services and self-help programs are provided for the
inmates.
LCC Program (1994)
Page 3
In an effort to maintain a drug free environment and encourage a drug free
lifestyle, weekly Narcotics Anonymous and Alcohol Anonymous meeting are held at
the facility. Urine samples are collected, in accordance with CDC policy, from
any inmate who, without medical approval, is believed to have used or currently
be under the influence of a controlled substance.
Other self help programs offered include stress management, problem solving,
finding clean and sober leisure activities and hobbies, and open discussion
groups on domestic violence. An "Open Line" is held by the Intake Counselor once
a week for inmates who just want to talk.
Several volunteer religious groups offer a variety of ministries on an on-going
basis to the residents in the form of Bible study groups, non-denominational
services, special programs for holidays. A Catholic priest and/or Jewish Rabbi
are available upon request.
LIBRARY SERVICES
ECI/LCC maintains an inmate library. Inmates assigned to the position of
Librarian have access to a computer with a library program installed. Library
hours are scheduled to maximize accessibility seven days a week. LCC does not
have a law library. Inmates requesting use of a law library shall be transported
by CDC to the Hub Institution.
VISITING
Visiting is encouraged as a means of developing and maintaining healthy family
and community relationships. ECI/LCC allows a minimum of 16 hours of visiting
per week. Visit requests are subject to denial or restrictions by CDC staff.
Appropriate parking space, including handicap parking, is allocated and
accessible to persons with disabilities. The visiting area has vending machines,
sufficient furniture, and custody staff to provide security. A separate area is
available for law enforcement/attorney/Administrative hearings interviews if
needed during scheduled visiting periods. The privacy of inmates and their
visitors is not imposed upon except as necessary for the identification of
persons to maintain order, acceptable conduct, and to prevent the introduction
of items, commodities or substances which inmates are not permitted to possess.
Limitations on the length of visits shall be imposed to avoid overcrowding.
Visiting does not conflict with or supersede required inmate participation in
LCC activities such as full-time work/training assignments. ECI/LCC staff notify
all visitors that upon entering the grounds of LCC their person, vehicle and
articles of property in their possession are subject to search to ensure LCC
security and to prevent introduction of contraband.
LCC Program (1994)
Page 4
CANTEEN
ECI/LCC has an inmate canteen program. Canteen items and a price list are kept
current and a copy is made available to each inmate. The canteen schedule
provides reasonable access to all inmates during non-working hours once a week.
Any profit derived by LCC from the inmate canteen program shall be deposited in
the Inmate Welfare Fund.
RECREATION PROGRAMS
Numerous recreational activities are organized within the facility to promote
self-esteem and team building. Tournaments are held in softball, ping pong,
horse shoes, volleyball and a variety of table games. A variety of craft classes
are also offered (such as leather work and shirt painting).
MEDICAL SERVICES
ECI/LCC has written procedures approved by CDC for inmate routine sick call.
Written agreements are established with local qualified medical personnel for 24
hour emergency medical services. In addition, CDC will return inmates to nearest
HUB institution contingent on the recommendations of the designated CDC Chief
Medical Officer responsible for medical decisions. Payment for all medical
services, including emergency dentistry, encumbered by inmates housed at ECI/LCC
is the sole responsibility of the CDC.
PROGRAM AUDITS
Program audits are conducted on an annual basis by the CCCA staff from Region
and/or Headquarters. Custody/Security, Program Administration, and Physical
Plant audits will be conducted for compliance to CDC standards. Areas noted as
partial compliance of any audit will be corrected within 30-90 days as
specifically stated in the audit.
The facility will receive official notice as to the areas of partial or
non-compliance. ECI/LCC will submit, within 10 days of receiving the notice, a
plan of correction indicating action be taken and time frames for full
compliance to the CCCA Administrator. The CCCA Administrator will review the
plan of correction and will either concur with the plan or specifically identify
the corrective actions to be taken and the time frame for its completion. In
case of any discrepancy, the appeal process is available if filed within 10 days
of notice. First level of appeal is to the CCCA Administrator and the second
level is the Deputy Director of Parole and Community Services Division.
At the end of the time limit, the facility will be reaudited. Those areas of
partial or non-compliance that remain uncorrected may cause a 1% penalty per day
to be imposed against the monthly invoice until deficiencies are corrected. In
addition, failure to comply with contract conditions, resulting in a breach of
security of health and safety standards, can result in the immediate
cancellation of the contract.
Marvin Wiebe
Page 2
STATE OF CALIFORNIA--YOUTH AND ADULT CORRECTIONAL AGENCY PETE WILSON, GOVERNOR
================================================================================
DEPARTMENT OF CORRECTIONS
Parole and Community Services Division
P. O. Box 942883
Sacramento, CA 94283-0001
November 29, 1995
Marvin Wiebe, President
Cornell Corrections, Inc.
1823 Knoll Drive, Suite 8
Ventura, CA 93003
Dear Mr. Wiebe:
This letter serves as formal acknowledgment for contract amendment processing
for the 1996/97 fiscal year (FY) for the Leo Chesney Center, Contract #R92.132.
By signing the approved signature block portion on Page 2 of this letter, the
undersigned acknowledges that the enclosed contract exhibit documents for the
1996/97 FY reflects changes as discussed in our negotiation conference call on
November 9, 1995. These enclosures are identified as Minimum Required Staffing
(Exhibit 1); Total Contract Allotment (Exhibit 2), Post Assignment Schedule
Summary (Exhibit 3), and Post Assignment Schedule Detail (Exhibit 3A-C).
It is further acknowledged that signing the approved signature block will
reflect a "roll over" of funding at the same level as 1995/96 FY (excluding the
additional day for leap year) with the proposed additional funding for selection
and training in compliance with Board of Corrections Standards (exclusive of
firearms). These contract documents also reflect budget revisions that were
processed during the 1995/96 FY as well as recognition of the mid-year
completion of program development reimbursements. The 1996/97 FY dollars serve
as a placeholder while CDC continues to address the Cost of Living Allowance
issue through the legislative budget process.
The proposed contract language to the Statement of Work relating to BOC training
has been revised and reflects the following:
THE CONTRACTOR SHALL HIRE AND PROVIDE PEACE AND CUSTODIAL OFFICER TRAINING TO
FACILITY CUSTODY STAFF IN ACCORDANCE WITH BOARD OF CORRECTIONS (BOC) STANDARDS
AND TRAINING OF LOCAL CORRECTIONS OFFICERS AS DETAILED IN TITLE 15, SUBCHAPTER
1., EXCLUSIVE OF FIREARMS. THE CONTRACTOR SHALL PROVIDE 116 HOURS OF BOC
CERTIFIED BASIC TRAINING TO CUSTODY STAFF WITHIN THE FIRST YEAR OF EMPLOYMENT.
SUBSEQUENTLY, THE CONTRACTOR SHALL PROVIDE 40 HOURS OF ANNUAL TRAINING OF WHICH
24 HOURS MUST BE BOC CERTIFIED AND 16 HOURS ON CDC RELATED TRAINING INCLUDING
BUT NOT LIMITED TO SEXUAL HARASSMENT, INMATE AND STAFF RELATIONS AND FIRST AID.
DURING THE 1996/97 FY, THE CONTRACTOR SHALL PROVIDE BASIC TRAINING TO ANY
EXISTING CUSTODY STAFF WHO HAVE NOT YET RECEIVED THE FULL 116 HOURS OF BASIC
TRAINING.
Marvin Wiebe
Page 2
The proposed contract language to the Financial Management Handbook relating to
training has been revised and reflects the following:
STAFF TRAINING COSTS ARE ALLOWABLE IN ACCORDANCE WITH THE STATEMENT OF WORK. CDC
REQUIRES THAT CUSTODIAL OFFICERS MEET BOC STANDARDS. OTHER STAFF TRAINING COSTS
WILL BE LIMITED TO THAT TRAINING WHICH IS DIRECTLY RELATED TO HIS/HER JOB
PERFORMANCE AND AS ALLOWED BY IRS STANDARDS.
Please return the signed letter indicating your approval and enclosures to the
Department of Corrections, P&CSD/CCCA, P.O. Box 942883, Sacramento, CA
94283-0001, Attention: Lisa Hansen, no later than DECEMBER 8, 1995 to ensure
timely processing of the contract document.
Sincerely,
/S/ BEN DEGROOT
BEN De GROOT
Parole Agent III and Chief Negotiator
Community Correctional Centers Administration
Enclosures
CORNELL CORRECTIONS OF
CONTRACTOR: CALIFORNIA, INC.
CONTRACTED FACILITY: LEO CHESNEY CENTER CCF
APPROVED:
/S/ MARVIN WIEBE VICE PRESIDENT, CORNELL CORRECTIONS OF
CALIFORNIA, INC.
Signature Title
DECEMBER 13, 1995
Date
STATE OF CALIFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91) CDC ELECTRONIC (1/94)
- --------------------------------------------------------------------------------
- -APPROVED BY THE ATTORNEY GENERAL CONTRACT NUMBER AM. NO.
R92.132 3
- --------------------------------------------------------------------------------
TAXPAYER'S FEDERAL EMPLOYER IDENTIFICATION NUMBER
94-2411045
- --------------------------------------------------------------------------------
THIS AGREEMENT, made and entered into this 1ST day of DECEMBER, 1995 , in the
State of California, by and between State of California, through its duly
elected or appointed, qualified and acting
- --------------------------------------------------------------------------------
TITLE OF OFFICER ACTING FOR STATE AGENCY
Chief, Service Contracts Section Department of Corrections, hereafter called
the State, and
- --------------------------------------------------------------------------------
CONTRACTOR'S NAME
CORNELL CORRECTIONS OF CALIFORNIA, INC. (LEO CHESNEY CENTER), hereafter called
the Contractor.
- --------------------------------------------------------------------------------
WITNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed,
does hereby agree to furnish to the State services and materials as follows:
(SET FORTH SERVICE TO BE RENDERED BY CONTRACTOR, AMOUNT TO BE PAID CONTRACTOR,
TIME FOR PERFORMANCE OR COMPLETION, AND ATTACH PLANS AND SPECIFICATIONS, IF
ANY.)
Contract R92.132 dated March 1, 1993 for a Community Correctional Facility,
which was amended on June 25, 1994 and July 1, 1994, is hereby further amended
to: (1) change the name of the Contractor effective January 1, 1996; and (2) add
encumbrances and the related changes for FY 1996/97.
1. Page 1, "Contractor's Name", of Amendment 2, is hereby changed to
"Cornell Corrections of California, Inc." Henceforth, all other
references to the Contractor's former name, "Eclectic Communications,
Inc.", is hereby changed.
2. Page 1, paragraph 2 of amendment 2: The cumulative total of this
contract through June 30, 1997 shall not exceed Thirteen Million, Two
Hundred Fifty-Nine Thousand, Three Dollars ($13,259,003) and the FY
breakdown follows:
FY TOTAL AMOUNT
92/93 $ 771,649
93/94 $3,093,379
94/95 $3,124,424
95/96 $3,131,130
96/97 $4,138,421
----------
TOTAL: $13,259,003
CONTINUED ON 8 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER.
- --------------------------------------------------------------------------------
The provisions on the reverse side hereof constitute a part of this
agreement. IN WITNESS WHEREOF, this agreement has been executed by the parties
hereto, upon the date first above written.
================================================================================
STATE OF CALIFORNIA CONTRACTOR
- --------------------------------------------------------------------------------
AGENCY CONTRACTOR (IF OTHER THAN AN INDIVIDUAL,
STATE WHETHER A CORPORATION, PARTNERSHIP,
ETC.)
Department of Corrections CORNELL CORRECTIONS OF CALIFORNIA, INC.
- --------------------------------------------------------------------------------
BY (AUTHORIZED SIGNATURE) BY (AUTHORIZED SIGNATURE)
/s/ Sharon E. Planchon /s/ Marvin Wiebe
- --------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING PRINTED NAME AND TITLE OF PERSON SIGNING
SHARON E. PLANCHON Marvin Wiebe, VP, Finance and Administration
- --------------------------------------------------------------------------------
TITLE ADDRESS
Chief, Service Contracts Section 1823 Knoll Drive, Suite 8
Ventura, CA 93003 (805) 644-8700
- --------------------------------------------------------------------------------
DEPARTMENT OF GENERAL SERVICES
USE ONLY
Department of General Services
APPROVED
JUN 29 1996
BY: /S/ J.B. WIHLE
Ass't. Chief Counsel
STATE OF CALIFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91) (REVERSE) CDC ELECTRONIC (1/94)
CORNELL CORRECTIONS OF CALIFORNIA, INC. 2 R92.132
(LEO CHESNEY CENTER)
Amendment 3
1. The Contractor agrees to indemnify, defend and save harmless the State,
its officers, agents and employees from any and all claims and losses
accruing or resulting to any and all contractors, subcontractors,
materialmen, laborers and any other person, firm or corporation
furnishing or supplying work services, materials or supplies in
connection with the performance of this contract, and from any and all
claims and losses accruing or resulting to any person, firm or
corporation who may be injured or damaged by the Contractor in the
performance of this contract.
2. The Contractor, and the agents and employees of Contractor, in the
performance of the agreement, shall act in an independent capacity and
not as officers or employees or agents of State of California.
3. The State may terminate this agreement and be relieved of the payment
of any consideration to Contractor should Contractor fail to perform
the covenants herein contained at the time and in the manner herein
provided. In the event of such termination the State may proceed with
the work in any manner deemed proper by the State. The cost to the
State shall be deducted from any sum due the Contractor under this
agreement, and the balance, if any, shall be paid the Contractor upon
demand.
4. Without the written consent of the State, this agreement is not
assignable by Contractor either in whole or in part.
5. Time is of the essence in this agreement.
6. No alteration or variation of the terms of this contract shall be valid
unless made in writing and signed by the parties hereto, and no oral
understanding or agreement not incorporated herein, shall be binding on
any of the parties hereto.
7. The consideration to be paid Contractor, as provided herein, shall be
in compensation for all of Contractor's expenses incurred in the
performance hereof, including travel and per diem, unless otherwise
expressly so provided.
================================================================================
AMOUNT ENCUMBERED BY THIS PROGRAM/CATEGORY (CODE AND TITLE) FUND
DOCUMENT Support Program 31 General
-------------------------------------------------
$ 3,138,421.00 96/7 (OPTIONAL USE)
- ---------------------------- 3020/32000
PRIOR AMOUNT ENCUMBERED FOR -------------------------------------------------
THIS CONTRACT ITEM CHAPTER STATUTE FISCAL YEAR
5240-001-001(5260) Pend 1996 96/7
$ 10,120,582.00 -------------------------------------------------
OBJECT OF EXPENDITURE (CODE AND TITLE)
TOTAL AMOUNT ENCUMBERED TO 418.14
DATE -------------------------------------------------
$ 13,259,003.00
================================================================================
I hereby certify upon my own personal T.B.A. NO. B.R. NO.
knowledge that budgeted funds are
available for the period and purpose
of the expenditure stated above.
- --------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER DATE
/s/ Shirley A. Clark
================================================================================
THE STATE OF CALIFORNIA & 3 R92.132
CORNELL CORRECTIONS OF CALIFORNIA AMENDMENT 3
(LEO CHESNEY CENTER)
3. Page 2, paragraph 1 of amendment 2: Effective July 1, 1996, the per
diem rate is increased to $34.97 per participant day and the Contractor
will provide services for as many as 71,175 participant days in FY
1996/97.
4. Page 2, paragraph 4 of amendment 2: For FY 1996/97, the annual facility
lease costs reimbursed by CDC to the Contractor shall not exceed
$484,596.
5. Page 2, paragraph 6 of amendment 2: The minimum staffing requirements
and total contract allotment for FY 1996/97 are attached hereto and
incorporated herein as Exhibits 1 and 2, respectively.
6. Page 2, paragraph 7 of amendment 2: The custody and culinary staff post
assignment schedule summaries and detail effective July 1, 1996 are
attached hereto and incorporated herein as Exhibits 3, 3A, 3B and 3C,
and shall remain in effect on an ongoing basis until revised.
The following paragraphs are added as Scope of Services provisions to the
contract:
7. The Contractor shall ensure all Custodial Officers meet Board of
Corrections (BOC) Training Standards as stipulated in Title 15,
Subchapter 1, Sections 131, 179 (exclusive of the 832 Penal Code
requirement). Subsequently, each Custody Officer must receive 40 hours
of training annually, 24 hours of which must be BOC certified as
stipulated in Title 15, Subchapter 1, Section 184(a)(6) and (b), with
the remaining 16 hours on CDC mandated subjects, including but not
limited to, sexual harassment, inmate/staff relations, and first aid.
This provision supersedes the requirements for staff training described
in the Statement of Work (SOW).
During the +996/97 FY, the Contractor shall provide basic training to
any existing custody staff who have not yet received the full 116 hours
of basic training.
Staff training costs for BOC Training Standards are allowable in
accordance with the SOW. Other staff training costs will be limited to
that training which is directly related to his/her job performance and
as allowed by IRS standards. This provision supersedes the requirements
for staff training described in the Financial Management Handbook.
All other terms and conditions not amended remain in full force and effect.
EXHIBIT 10.16
ASSET PURCHASE AGREEMENT
BY AND BETWEEN EACH OF
CORNELL CORRECTIONS OF TEXAS, INC.,
CORNELL CORRECTIONS, INC.,
ED DAVENPORT,
JOHNNY RUTHERFORD, AND
MIDTEX DETENTIONS, INC.
MAY 22, 1996
<PAGE>
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
PAGE
ARTICLE I TRANSACTION....................................... 3
Section 1.1 Definition of "Closing" and "Closing Date"........ 3
Section 1.2 Deliveries by Seller at the Closing............... 3
Section 1.3 Deliveries by Buyer at the Closing................ 4
Section 1.4 Contingent Purchase Price......................... 5
Section 1.5 Purchase Price.................................... 5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER.......... 6
Section 2.1 Organization of Seller............................ 6
Section 2.2 Authority; No Violation........................... 6
Section 2.3 Title to Assets................................... 6
Section 2.4 Consents.......................................... 7
Section 2.5 Litigation........................................ 7
Section 2.6 Statements........................................ 7
Section 2.7 Liabilities....................................... 7
Section 2.8 Use of Name....................................... 8
Section 2.9 Leases............................................ 8
Section 2.10 INS Courtroom..................................... 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER........... 8
Section 3.1 Organization of Buyer............................. 8
Section 3.2 Authority; No Violation........................... 8
Section 3.3 Litigation........................................ 8
Section 3.4 Statements........................................ 9
ARTICLE IV COVENANTS......................................... 9
Section 4.1 Covenants of Seller/Davenport..................... 9
Section 4.2 Covenants of Buyer................................ 12
ARTICLE V CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER..... 12
Section 5.1 Truth of Representations.......................... 12
Section 5.2 Compliance with Covenants and Conditions.......... 13
Section 5.3 Litigation........................................ 13
Section 5.4 Consents.......................................... 13
Section 5.5 Opinion of Buyer's Counsel........................ 13
Section 5.6 Good Standing and Other Certificates.............. 13
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER...... 14
Section 6.1 Truth of Representations.......................... 14
Section 6.2 Compliance with Covenants and Conditions.......... 14
Section 6.3 Adverse Changes................................... 14
Section 6.4 Litigation........................................ 14
Section 6.5 Consents.......................................... 14
Section 6.6 Operating Agreement............................... 14
Section 6.7 Opinion of Seller's Counsel....................... 14
Section 6.8 Leases............................................ 15
Section 6.9 Good Standing and Other Certificates.............. 15
Section 6.10 Employees......................................... 15
Section 6.11 Current Account Balance........................... 15
ARTICLE VII FURTHER AGREEMENTS OF SELLER AND BUYER................... 15
Section 7.1 Costs and Expenses................................ 15
Section 7.2 Liabilities Not Assumed........................... 15
Section 7.3 Headquarters Building............................. 16
Section 7.4 Review of the Companies........................... 16
Section 7.5 Confidentiality................................... 16
ARTICLE VIII INDEMNIFICATION.......................................... 17
Section 8.1 Indemnification of Parties........................ 17
Section 8.2 Survival.......................................... 17
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER................. 18
Section 9.1 Grounds for Termination........................... 18
Section 9.2 Amendment......................................... 18
ARTICLE X NONCOMPETITION.................................... 18
Section 10.1 Seller's Covenant Not to Compete.................. 18
Section 10.2 FBOP.............................................. 19
Section 10.3 Name.............................................. 19
Section 10.4 Severability...................................... 19
Section 10.5 Equitable Relief.................................. 20
ARTICLE XI OPTION FEE........................................ 20
Section 11.1 Option Fee........................................ 20
Section 11.2 Investment of Option Fee Amount; Instructions..... 20
Section 11.3 Closing........................................... 20
Section 11.4 Seller's Receipt of Option Fee.................... 20
Section 11.5 Buyer's Receipt of Option Fee..................... 20
ARTICLE XII GENERAL PROVISIONS....................................... 21
Section 12.1 Exclusive Agreement; Third Party Beneficiaries.... 21
Section 12.2 Article and Section Headings...................... 21
Section 12.3 Governing Law..................................... 21
Section 12.4 Counterparts...................................... 21
Section 12.5 Exhibits/Schedules................................ 21
Section 12.6 Binding Effect.................................... 21
Section 12.7 Assignment........................................ 21
Section 12.8 Notices........................................... 21
Section 12.9 Further Assurances................................ 22
Section 12.10 Brokers........................................... 22
Section 12.11 Severability...................................... 23
Section 12.12 Publicity........................................ 23
Section 12.13 Arbitration...................................... 23
Section 12.14 Best Efforts...................................... 23
Section 12.15 Construction...................................... 23
Schedule 1 - Personal Property
Schedule 2 - Liabilities
Exhibit A-1 - Interstate Land Description
Exhibit A-2 - Airpark Land Description
Exhibit A-3 - Flightline Land Description
Exhibit B-1 - Interstate Lease
Exhibit C-1 - Airpark Base Lease
Exhibit C-2 - Amended Airpark Sublease
Exhibit C-3 - Airpark Secondary Sublease
Exhibit D-1 - Flightline Base Lease
Exhibit D-2 - Amended Flightline Sublease
Exhibit D-3 - Flightline Secondary Sublease
Exhibit E - Operating Agreement
Exhibit F - Assignment and Assumption of Leases
Exhibit G - Assignment and Assumption of Operating Agreement
Exhibit H - Bill of Sale
Exhibit I - Rutherford Consulting Agreement
Exhibit J-1 - Davenport Noncompetition Agreement
Exhibit J-2 - Rutherford Noncompetition Agreement
Exhibit K-1 - Opinion of Buyer's Counsel
Exhibit K-2 - Opinion of Seller's Counsel
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of this 22nd day of May, 1996, by and between each of CORNELL
CORRECTIONS OF TEXAS, INC., a Delaware corporation ("Buyer"), CORNELL
CORRECTIONS, INC., a Delaware corporation ("Cornell "), ED DAVENPORT
("Davenport"), JOHNNY RUTHERFORD ("Rutherford"), and MIDTEX DETENTIONS, INC., a
Texas corporation ("Seller");
W I T N E S S E T H:
WHEREAS, The City of Big Spring, Texas (the "City") operates
three correctional centers located in Big Spring, Texas (the "Business");
WHEREAS, Seller provides senior management services to the City
in connection with the operation of the Business pursuant to that certain
management contract between Seller and the City, dated February 18, 1994 (the
"Management Contract");
WHEREAS, the Business consists of three units that are commonly
referred to as the "Interstate Unit," the "Airpark Unit," and the "Flightline
Unit";
WHEREAS, the Interstate Unit is located on real estate, more
particularly described on Exhibit A-1 (the "Interstate Land"), that is owned by
the City;
WHEREAS, the parties expect that, with respect to the Interstate
Land, Davenport will enter into a base lease substantially in the form set forth
on Exhibit B-1 attached hereto (the "Interstate Lease");
WHEREAS, the Airpark Unit is located on real estate more
particularly described on Exhibit A-2 (the "Airpark Land") that is owned by the
City and that is leased to Davenport pursuant to the base lease attached hereto
as Exhibit C-1 (the "Airpark Base Lease") and that is in turn subleased by
Davenport to the City (the "Airpark Sublease");
WHEREAS, the parties expect that, with respect to the Airpark
Land, Davenport and the City will (i) amend the Airpark Sublease such that such
Airpark Sublease will be substantially in the form set forth on Exhibit C-2
attached hereto (the "Amended Airpark Sublease") and (ii) enter into a secondary
sublease the major terms of which are set forth on Exhibit C-3 attached hereto
(the "Airpark Secondary Sublease");
WHEREAS, the Flightline Unit is located on real estate more
particularly described on Exhibit A-3 (the "Flightline Land") that is owned by
the City and that is leased to Davenport pursuant to the base lease attached
hereto as Exhibit D-1 (the "Flightline Base Lease") and that is in turn
subleased by Davenport to the City (the "Flightline Sublease");
1
WHEREAS, the parties expect that, with respect to the Flightline
Land, Davenport and the City will (i) amend the Flightline Sublease such that
such Flightline Sublease will be substantially in the form set forth on Exhibit
D-2 attached hereto (the "Amended Flightline Sublease") and (ii) enter into a
secondary sublease (the major terms of which are set forth on Exhibit D-3
attached hereto) (the "Flightline Secondary Sublease");
WHEREAS, Davenport desires to assign to Buyer all of his right,
title and interest under, and Buyer desires to assume Davenport's obligations
under, the Interstate Lease;
WHEREAS, Davenport desires to assign to Buyer all of his right,
title and interest under, and Buyer desires to assume Davenport's obligations
under, the Airpark Base Lease, the Airpark Sublease, the Amended Airpark
Sublease and the Airpark Secondary Sublease (collectively, the "Airpark
Leases");
WHEREAS, Davenport desires to assign to Buyer all of his right,
title and interest under, and Buyer desires to assume Davenport's obligations
under, the Flightline Base Lease, the Flightline Sublease, the Amended
Flightline Sublease and the Flightline Secondary Sublease (collectively, the
"Flightline Leases") (the Interstate Lease, Airpark Leases, and the Flightline
Leases are collectively referred to as the "Leases");
WHEREAS, Seller desires to sell, and Buyer desires to purchase,
certain items of personal property of Seller, such items being more particularly
described on Schedule 1 (the "Personal Property");
WHEREAS, the parties expect that Seller will enter into an
operating agreement with the City to operate the Business (the "Operating
Agreement") substantially in the form of the operating agreement attached hereto
as Exhibit E pursuant to which the operation of the Business shall be
transferred to Seller;
WHEREAS, Seller intends to transfer all of Seller's rights to
Buyer, and Buyer intends to assume all of Seller's obligations, under the
Operating Agreement; and
WHEREAS, pursuant to the Operating Agreement, the City shall
transfer to Buyer the assets, and Buyer shall assume the liabilities, described
on the City's Enterprise Funds Combining Balance Sheet, dated September 30,
1995, as updated as of the Closing Date (the "Balance Sheet"), under the heading
"Correctional Center"; provided, however, that Buyer shall not assume any
liabilities (i) that are not described on the Balance Sheet, (ii) for workers'
compensation claims or litigation with respect to occurrences arising prior to
the Closing Date (as defined herein), and (iii) associated with the real estate
assets described on the Balance Sheet (such assets to be transferred to Buyer
and liabilities to be assumed by Buyer are herein referred to as the "BSCC
Fund"); and
WHEREAS, the parties desire that Rutherford enter into a
consulting agreement and that Davenport and Rutherford each enter into a
noncompetition agreement with Buyer;
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NOW, THEREFORE, in consideration of the respective
representations, warranties, covenants, agreements and other provisions
contained in this Agreement, the parties agree as follows:
ARTICLE I
TRANSACTION
SECTION 1.1 DEFINITION OF "CLOSING" AND "CLOSING DATE". The
closing of the transactions provided for herein (the "Closing") shall take place
at the offices of Baker & Botts, L.L.P., Houston, Texas, counsel to Buyer, at
2:00 p.m., Houston time, on the later of (i) May 31, 1996 and (ii) five business
days following the satisfaction of the conditions to closing described in
Section 6.5, Section 6.6 and Section 6.8, or at such other time and place as the
parties shall mutually agree (the "Closing Date").
SECTION 1.2 DELIVERIES BY SELLER AT THE CLOSING. At the Closing,
Seller, Davenport and Rutherford (as applicable) shall execute and deliver, or
cause to be executed and delivered, together with any other documents required
to be delivered by Seller, Davenport and Rutherford at Closing pursuant to this
Agreement, to Buyer the following:
(a) A Secretary's Certificate of Seller attaching certified
copies of resolutions of the Board of Directors and shareholders of
Seller, as applicable, authorizing the execution, delivery and
performance of this Agreement and authorizing all of the transactions
contemplated by this Agreement;
(b) An executed copy of an assignment and assumption of leases,
substantially in the form of Exhibit F, pursuant to which Davenport will
assign to Buyer all of its right, title and interest in the Interstate
Lease, the Airpark Leases, and the Flightline Leases, including any
permits to operate the Business thereon;
(c) An executed copy of an assignment and assumption of Operating
Agreement, substantially in the form of Exhibit G (the "Assignment and
Assumption of Operating Agreement"), pursuant to which Seller will
assign to Buyer all of its right, title and interest in the Operating
Agreement;
(d) An executed copy of a bill of sale, substantially in the form
of Exhibit H, pursuant to which Seller will convey the Personal Property
to Buyer;
(e) An executed copy of a consulting agreement, substantially in
the form of Exhibit I, pursuant to which Rutherford will agree to render
consulting services to Buyer (the "Rutherford Consulting Agreement");
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(f) An executed copy of the Noncompetition Agreement,
substantially in the form of Exhibit J-1, pursuant to which Davenport
will agree not to compete with the Buyer (the "Davenport Noncompetition
Agreement");
(g) An executed copy of the Noncompetition Agreement,
substantially in the form of Exhibit J-2, pursuant to which Rutherford
will agree not to compete with Buyer (the "Rutherford Noncompetition
Agreement"); and
(h) A written authorization to Bank (as defined in Section 11.1)
to release the earnings with respect to the Option Fee Amount (as
defined in Section 11.1) to Buyer pursuant to the terms of Section 11.2.
SECTION 1.3 DELIVERIES BY BUYER AT THE CLOSING. At the Closing,
Buyer shall execute and deliver, or cause to be executed and delivered, together
with any other documents required to be delivered by Buyer at Closing pursuant
to this Agreement, to Seller, Davenport and Rutherford (as applicable) the
following:
(a) A Secretary's Certificate of Buyer attaching certified copies
of resolutions of the Board of Directors of Buyer authorizing the
execution, delivery and performance of this Agreement and authorizing
all of the transactions contemplated by this Agreement;
(b) A certified check, cashier's check or wire transfer of
current funds received and credited to the account of the following
payees:
(1) $3,700,000 to the City for the City's general fund in
consideration of the City's execution and delivery of the
Operating Agreement and the City's execution and delivery of the
Interstate Lease, the Amended Airpark Sublease, the Airpark
Secondary Sublease, the Amended Flightline Sublease and the
Flightline Secondary Sublease;
(2) $3,100,000 to Norwest Bank Texas, Big Spring, N.A.
(formerly known as First National Bank of Big Spring in repayment
of Davenport's indebtedness;
(3) $50,000 to Equitable Securities, Inc. ("Equitable")
pursuant to the terms and conditions of Section 12.10;
(4) $1,000,000 to Seller;
(5) $12,250,000 to Davenport; and
(6) $50,000 to Davenport in full repayment of his advances
to the BSCC Fund for the construction of the INS Courtroom (as
defined in Section 2.10).
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(c) An executed copy of an assignment and assumption of leases,
substantially in the form of Exhibit F, pursuant to which Buyer will
assume all of Davenport's obligations under the Interstate Lease, the
Airpark Leases, and the Flightline Leases;
(d) An executed copy of the Assignment and Assumption of
Operating Agreement pursuant to which Buyer will assume all of Seller's
obligations under the Operating Agreement;
(e) An executed copy of the Rutherford Consulting Agreement;
(f) An executed copy of the Davenport Noncompetition Agreement
and the Rutherford Noncompetition Agreement; and
(g) A written authorization to Bank (as defined in Section 11.1)
to release the Option Fee Amount (as defined in Section 11.1) to
Davenport pursuant to the terms of Section 11.3.
SECTION 1.4 CONTINGENT PURCHASE PRICE. The Contingent Purchase Price (as
defined in Section 1.5(c)) shall be paid to Davenport by Buyer within 60 days
following the Closing Date. Cornell hereby guarantees the performance of Buyer
pursuant to this Section 1.4.
SECTION 1.5 PURCHASE PRICE. (a) The Purchase Price shall consist of the
Closing Purchase Price (as defined in Section 1.5(b)) and the Contingent
Purchase Price (as defined in Section 1.5(c)).
(b) The term Closing Purchase Price shall mean the sum of (i)
$22,150,000, less the Option Fee Amount (as defined in Article XI) paid to
Davenport pursuant to Section 11.3.
(c) The term Contingent Purchase Price shall mean (i) the lesser
of (1) $500,000 and (2) the excess of (A) the Current Account Balance (as
defined in Section 1.5(d)), over (B) $1 million, less (ii) the amount of rent
prepaid with respect to the Airpark Sublease and the Flightline Sublease
(ignoring for this purpose the terms of the Amended Airpark Sublease and the
Amended Flightline Sublease) for the period from the Closing Date to the [end of
the month that includes the Closing Date], plus (iii) simple interest at 5% per
annum from the Closing Date to the payment date described in Section 1.4 on the
excess of the amount described in clause (i) over the amount described in clause
(ii).
(d) The Current Account Balance shall be determined as of the
last day of the month preceding the month in which the Closing Date occurs,
shall be determined in accordance with generally accepted accounting principles,
consistently applied, and shall be the excess of (i) the sum of (1) the current
assets plus the inmate special project account assets (to the extent that such
funds can be utilized to offset future operating/inmate costs) of the BSCC Fund
and (2) $225,000 of the BSCC Fund's investment in the construction of the INS
Courtroom (as defined in Section 2.10), over (ii) the sum of (1) the current
liabilities of the BSCC Fund (excluding the
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current portion of any capitalized facility lease), and (2) the inmate project
account liabilities (to the extent that such liabilities constitute future
operating/inmate costs), and (3) $50,000 attributable to the payment to
Davenport pursuant to Section 1.3(b)(6) for his advances for the construction of
the INS Courtroom (as defined in Section 2.10).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and Davenport hereby represent and warrant to Buyer as
follows as of the Closing Date:
SECTION 2.1 ORGANIZATION OF SELLER. Seller is duly organized and
validly existing in good standing under the laws of the State of Texas and has
the power to own its properties and to carry on its Business as now owned and
operated by it.
SECTION 2.2 AUTHORITY; NO VIOLATION. The execution, delivery and
performance of this Agreement by Seller and Davenport, including the
transactions contemplated hereby, have been duly authorized by the Board of
Directors and shareholders of Seller, and will not:
(a) violate any provision of the Articles of Incorporation or
Bylaws of Seller, each as amended to date;
(b) violate any law, regulation or any order applicable to Seller
or Davenport of any court or administrative or other governmental
department, commission, board, instrumentality, agency or body
("Governmental Authority");
(c) conflict with, result in a breach of, constitute a default
under (without regard to requirements of notice or the lapse of time or
both), accelerate or permit the acceleration of the performance required
by, or require any consent, authorization or approval under, (i) any
mortgage, indenture, loan, credit agreement or other agreement or
instrument evidencing indebtedness for borrowed money to which Seller or
Davenport is a party or by which Seller or Davenport is bound or to
which any of its properties is subject or (ii) any lease, license,
contract or other agreement or instrument to which Seller or Davenport
is a party or by which it is bound or to which any of its properties is
subject; or
(d) result in the creation or imposition of any lien, charge or
other encumbrance upon the assets of Seller or Davenport.
SECTION 2.3 TITLE TO ASSETS. As of the Closing Date, Seller will
have good and marketable title, free and clear of all liens, claims, mortgages,
security interests, title imperfections and encumbrances, to the Personal
Property and the Operating Agreement. As of
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the Closing Date, Davenport will have good and marketable title, free and clear
of all liens, claims, mortgages, security interests, title imperfections and
encumbrances, to all of the Interstate Lease, the Airpark Base Lease, the
Airpark Sublease, the Amended Airpark Sublease, the Airpark Secondary Sublease,
the Flightline Base Lease, the Flightline Sublease, the Amended Flightline
Sublease and the Flightline Secondary Sublease, subject only to the Federal
Aviation Administration indenture encumbering the Airpark Land and Flightline
Land (the "FAA Indenture"). As of the Closing Date, the City will have good and
marketable title, free and clear of all liens, claims, mortgages, security
interests, title imperfections and encumbrances, to the BSCC Fund, the
Interstate Land, the Airpark Land and the Flightline Land, subject to the FAA
Indenture.
SECTION 2.4 CONSENTS. Except for the consent of the Federal
Bureau of Prisons and the City of Big Spring as contemplated by Section 5.4 and
Section 6.5, no consent, approval or authorization of, or notice to or filing
with, any Governmental Authority or third party is or will be required in
connection with the transactions contemplated hereby. Prior to the Closing Date,
Davenport shall have obtained any consent to assignment and other third party
approval required to effect Davenport's assignment of their respective right,
title and interest in the Leases to the Buyer and to effect Seller's sale of the
Personal Property to Buyer.
SECTION 2.5 LITIGATION. No suit, action or other proceeding to
which Seller is a party is pending or, to Seller's knowledge, threatened against
the City, Seller or Davenport, before any Governmental Authority in which it is
sought to restrain or prohibit the consummation of the transactions provided for
herein, or which relates to or would encumber the Leases or the Personal
Property.
SECTION 2.6 STATEMENTS. No representation or warranty by Seller
contained in this Agreement or the exhibits or schedules hereto, or any written
representation, statement or certificate made or furnished, or to be made or
furnished, by Seller or any officer or representative of Seller pursuant hereto
or in connection with the Closing of the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the representations or
statements contained herein or therein not misleading. No representation or
warranty by Davenport contained in this Agreement or the exhibits or schedules
hereto, or any written representation, statement or certificate made or
furnished, or to be made or furnished, by Davenport pursuant hereto or in
connection with the Closing of the transactions contemplated hereby, contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the representations or statements
contained herein or therein not misleading.
SECTION 2.7 LIABILITIES. Except as set forth on SCHEDULE 2 and
except for the FAA Indenture, there are no debts, liabilities or obligations
(whether absolute or contingent, asserted or unasserted, due or to become due)
against, relating to or affecting Seller or the BSCC Fund.
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SECTION 2.8 USE OF NAME. Neither Seller nor Davenport has granted
the right to use the name "MIDTEX" to any person other than Seller. Seller will
change its name (or, at the sole discretion of Davenport, dissolve such entity
so that its certificate of incorporation or other charter document is forfeited)
as soon as practicable after the Closing Date, and in no event later than one
month after the Closing Date. Seller and Davenport make no representation
regarding the Buyer's right to use such name versus the rights of third parties
to use such name.
SECTION 2.9 LEASES. Each Lease is in full force and effect; all
rents and additional rents due to date on each such Lease have been paid; in
each case, the lessee has been in peaceable possession since the commencement of
the original term of such Lease and is not in default thereunder and no waiver,
indulgence or postponement of the lessee's obligations thereunder has been
requested or granted by lessor or lessee; and there exists no event of default
or event, occurrence, condition or act (including the assignment of the Lease to
Davenport hereunder) which, with the giving of notice, the lapse of time or the
happening of any further event or condition, would become a default under such
Lease. Seller has not violated nor is in danger of violating any of the material
terms or conditions under any such Lease, and all of the covenants to be
performed by any other party under any such Lease have been fully performed.
SECTION 2.10 INS COURTROOM. As of May 31, 1996, Davenport has
paid $50,000 and the BSCC Fund has paid at least $175,000 to develop and
construct the INS Courtroom Expansion at the Flightline Unit (the "INS
Courtroom").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as of the Closing
Date the following:
SECTION 3.1 ORGANIZATION OF BUYER. Buyer is duly organized and
validly existing in good standing under the laws of Delaware and has the power
to own its properties and to carry on its business as now owned and operated by
it.
SECTION 3.2 AUTHORITY; NO VIOLATION. The execution, delivery and
performance of this Agreement by Buyer, including the transactions contemplated
hereby, have been authorized by the Board of Directors of Buyer, and will not
violate in any material respect any provision of the Articles of Incorporation
or Bylaws of Buyer or, to Buyer's knowledge, any law or regulation or any order
applicable to Buyer of any Governmental Authority.
SECTION 3.3 LITIGATION. No suit, action or other proceeding to
which Buyer is a party is pending or, to Buyer's knowledge, threatened against
Buyer or Cornell before any Governmental Authority in which it is sought to
restrain or prohibit the consummation of the transactions provided for herein.
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SECTION 3.4 STATEMENTS. No representation or warranty by Buyer
contained in this Agreement or the exhibits or schedules hereto, or any written
representation, statement or certificate made or furnished, or to be made or
furnished, by Buyer, by Cornell, or by any officer or representative of Buyer or
Cornell pursuant hereto or in connection with the Closing of the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
representations or statements contained herein or therein not misleading.
ARTICLE IV
COVENANTS
SECTION 4.1 COVENANTS OF SELLER/DAVENPORT.
(a) BENEFIT PLANS. On, prior to and after the Closing Date,
Seller shall maintain, until terminated as provided for herein, Seller's
employee benefit plans, including any profit sharing, pension,
severance, retirement, bonus, stock option, stock purchase, welfare,
group health insurance, group life insurance or other similar plans,
agreements, trusts arrangements or funds to which Seller is a party or
by which Seller is bound (collectively, the "Plans"). Prior to the
Closing Date, Seller shall make arrangements to terminate the Plans,
which termination shall occur after the Closing Date within such time
frame to be agreed to by Seller and Buyer. Seller shall indemnify and
defend Buyer against, and hold Buyer harmless from any Loss or Losses
(as defined in Section 8.1) resulting from any claim from any current or
former employee of Seller under any of the Plans. Any such claim for
indemnification shall be made pursuant to Article VIII.
(b) OPERATING LEASES. Seller will use its best efforts on behalf
of Buyer to cause the operating leases in favor of Seller or the City as
lessee for assets used in the Business to be assigned to Buyer on terms
no less favorable to Buyer than Seller or the City, as the case may be,
currently enjoys.
(c) ORDINARY COURSE. During the period from the date of this
Agreement to the Closing Date, Seller will conduct its operations only
according to its ordinary and usual course of business and will use its
best efforts to preserve intact its business organizations, keep
available the services of its officers and employees and maintain
satisfactory relationships with licensors, suppliers, distributors,
clients and others having business relationships with Seller and the
Business. Without limiting the generality of the foregoing, without the
prior written consent of Buyer, Seller will not, and will not allow the
City to:
(1) mortgage, pledge or subject any of its assets to any
lien;
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(2) acquire or dispose of any assets, other than in the
ordinary course of business and consistent with past practice;
(3) create, incur, assume or guarantee any indebtedness
for borrowed money or any other liability or obligation (whether
absolute, accrued, contingent or otherwise) other than in the
ordinary course of business and consistent with past practice;
(4) enter into or assume any contract, agreement,
obligation or commitment, other than in the ordinary course of
business and consistent with past practice, or enter into any
contract with Seller, Davenport, Rutherford or any of their
respective affiliates;
(5) enter into any contract with any Governmental
Authority;
(6) knowingly violate, breach or default, or take or fail
to take any action that (with or without notice or lapse of time
or both) would constitute a violation, breach or default under
any term or provision of any contract, agreement, obligation or
commitment to which Seller or the City is a party;
(7) make commitments or agreements for capital
expenditures or capital additions that individually exceed
$10,000 or in the aggregate exceed $50,000, except for the INS
Courtroom expenditures;
(8) enter into, amend or extend any employment agreement
or grant any severance or termination pay or increase the
salaries or other compensation of, or make any advance (excluding
advances for ordinary and necessary business expenses) or loan
to, any of its employees or make any increase in, or any addition
to, other benefits to which any of such employees may be
entitled, except for one time bonuses paid by Seller or Davenport
to Seller employees at the consummation of the transactions
contemplated by this Agreement;
(9) fail to maintain any of its properties according to
the standards maintained in the ordinary course of business
consistent with past practice;
(10) (A) merge, consolidate or otherwise combine with any
other entity, (B) acquire all or substantially all, or a material
portion of the assets, capital stock or other equity securities
of any other entity, or any business division of any other
entity, or (C) otherwise organize, or acquire securities of, any
other entity;
(11) take any action, or omit to take any action, that
would cause the representations and warranties of Seller or
Davenport contained in this Agreement to be materially untrue or
incorrect; or
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(12) enter into or make any agreement (whether written or
oral) to do any of the things described above in this Section
4.1(c).
(d) BEST EFFORTS. Each of Seller and Davenport shall use
their respective best efforts to:
(1) preserve intact Seller's and the City's present
business organization, reputation and customer relations;
(2) keep available the services of the present officers,
employees, agents, consultants and other similar representatives
involved in the conduct of the Business;
(3) maintain all material governmental authorizations to
do business;
(4) comply with all material governmental requirements;
(5) maintain substantially intact the work force of Seller
and the City as it existed on the date of this Agreement with
appropriate substitutions and changes attributable to customary
turnover;
(6) satisfy or perform diligently in respect of all
material commitments and other obligations in respect of its
customers;
(7) maintain in full force and effect all contracts,
documents and arrangements; and
(8) continue all current marketing and selling activities
relating to the Business.
(e) INFORMATION. During the period from the date of this
Agreement to the Closing Date, and as requested by Buyer, each of Seller
and Davenport will confer on a regular and frequent basis with one or
more designated representatives of Buyer to report material operational
matters and to report the general status of ongoing operations and
notify Buyer of any emergency or other change in the normal course of
business of Seller or the City or in the operation of properties of
Seller or the City and of any complaints, investigations or hearings (or
communications indicating that the same may be contemplated),
adjudicatory proceedings, budget meetings or submissions involving any
governmental authority or involving any material property of Seller or
the City, and keep Buyer fully informed of such events and permit its
representatives prompt access to all materials prepared in connection
therewith.
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(f) EXCLUSIVE DEALING. During the period from the date of this
Agreement to the Closing Date, Seller and Davenport shall not, and shall
cause each of their employees, advisors, attorneys, accountants and
other representatives to refrain from taking any action, directly or
indirectly, to encourage, initiate or engage in discussions or
negotiations with, or provide any information to, any person, other than
Buyer, concerning any purchase of Seller's stock or any merger, sale of
substantially all the assets or similar transaction involving Seller or
the Business.
SECTION 4.2 COVENANTS OF BUYER.
(a) BENEFIT PLANS. Upon termination of the Plans, Buyer shall
provide employee benefit plans to the employees of Seller and the City
hired by Buyer that are consistent with the practice of Buyer and
comparable with those employee benefit plans offered to other similar
employees of Buyer, Cornell and their respective affiliates employed in
similar capacities. Buyer shall be liable for all accrued vacation pay
for any employee of Seller.
(b) MOTOR VEHICLE TRANSFER TAX. Buyer shall be liable for and
shall pay all sales or use taxes (including motor vehicle transfer
costs) imposed with respect to all of the transactions contemplated by
this Agreement.
(c) EMPLOYEE BONUSES. Buyer shall pay a bonus to employees
currently involved in the Business who resign from their employment with
the City and accept employment with Buyer, and such bonus shall be in
consideration for such resignation and acceptance. The total bonus
amount (including all out-of-pocket tax and withholding costs to Buyer)
shall not exceed $600,000, and the bonus shall be payable 50% within 60
days following the Closing Date and 50% to such employees who shall
remain in the employ of Buyer on the second anniversary of the Closing
Date. Buyer shall deposit $300,000 in a restricted account to be used
solely to pay the bonus on the second anniversary of the Closing Date.
The amounts of each bonus to an employee shall be determined by Buyer,
considering each employee-recipient's contribution to the Texas
Municipal Retirement System.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
All obligations of Seller under this Agreement are subject to the
fulfillment, prior to or at the Closing, of the following conditions (all or any
of which conditions may be waived in writing in whole or in part by Seller):
SECTION 5.1 TRUTH OF REPRESENTATIONS. The representations and
warranties made by Buyer and by Cornell herein shall be true and correct in all
respects on the Closing Date.
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SECTION 5.2 COMPLIANCE WITH COVENANTS AND CONDITIONS. Buyer shall
have complied with and performed all of its covenants, obligations and
conditions required by this Agreement to be complied with or performed by it on
or prior to the Closing Date.
SECTION 5.3 LITIGATION. There shall not be pending, or
threatened, any action, proceeding or investigation for any injunction,
preliminary restraining order or any order of any nature directing any of the
transactions contemplated by this Agreement not to be consummated; nor shall any
such injunction, preliminary restraining order or other order have been issued
and be in effect; nor shall any suit or other proceeding be pending or
threatened in which it is sought to obtain damages or other relief in connection
with this Agreement or the transactions contemplated hereby.
SECTION 5.4 CONSENTS. The Federal Bureau of Prisons and the City
shall have each issued its written consent to the transactions contemplated by
this Agreement, and the consent of the Federal Bureau of Prisons will include a
statement to the effect that the consummation of the transactions contemplated
by this Agreement (including the terms of the Operating Agreement) do not
violate the terms of that certain Intergovernmental Agreement by and between
each of the Department of Justice, the Federal Bureau of Prisons, the
Immigration and Naturalization Service, and the City, dated June 5, 1989,
together with the accompanying Statement of Work entitled "Contract Confinement
Services and all Amendments and Modifications" (the "IGA"). The City shall have
executed the Operating Agreement and shall have delivered it to Seller. All
permits, authorizations, consents, approvals and waivers from other Governmental
Authorities and other third parties necessary to permit Seller and Buyer to
consummate all of the transactions contemplated hereby shall have been obtained.
SECTION 5.5 OPINION OF BUYER'S COUNSEL. Buyer shall have
furnished Seller with a favorable opinion, dated the Closing Date, of Baker &
Botts, L.L.P., counsel to the Buyer, generally in the form set forth in Exhibit
K-1 attached hereto with such changes thereto as counsel for the respective
parties may agree.
SECTION 5.6 GOOD STANDING AND OTHER CERTIFICATES. Buyer shall
have delivered to Seller (a) copies of the Articles of Incorporation, including
all amendments thereto, in each case certified by the Secretary of State or
other appropriate official of the State of Delaware, of Seller, (b) a
certificate from the Secretary of State of the State of Delaware, dated within
five days prior to the Closing Date, to the effect that Buyer is in good
standing or subsisting in such jurisdiction and listing all charter documents of
Buyer on file, (c) a certificate as to the tax status of Buyer from the
appropriate official in the State of Delaware, if different from the certificate
in subsection 5.6(b) hereof and (d) a copy of the Bylaws of Buyer, certified by
the Secretary of Buyer as being true and correct and in effect on the Closing
Date.
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ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
All obligations of Buyer under this Agreement are subject to the
fulfillment, prior to or at the Closing, of the following conditions (all or any
of which conditions may be waived in writing in whole or in part by Buyer):
SECTION 6.1 TRUTH OF REPRESENTATIONS. The representations and
warranties made by Seller herein shall be true and correct in all respects on
the Closing Date.
SECTION 6.2 COMPLIANCE WITH COVENANTS AND CONDITIONS. Seller
shall have complied with and performed all of its covenants, obligations and
conditions required by this Agreement to be complied with or performed by it on
or prior to the Closing Date.
SECTION 6.3 ADVERSE CHANGES. There shall have been no material
adverse change in the condition (financial or other) of Seller, the Personal
Property, the Leases or the Business, as determined in Buyer's reasonable
discretion, between May 1, 1996 and the Closing Date.
SECTION 6.4 LITIGATION. There shall not be pending, or
threatened, any action, proceeding or investigation for any injunction,
preliminary restraining order, or any order of any nature directing the
transactions contemplated by this Agreement not to be consummated; nor shall any
such injunction, preliminary restraining order or other order have been issued
and be in effect; nor shall any suit or other proceeding be pending or
threatened in which it is sought to obtain damages or other relief in connection
with this Agreement or the transactions contemplated hereby.
SECTION 6.5 CONSENTS. The Federal Bureau of Prisons and the City
shall have each issued its written consent to the transactions contemplated by
this Agreement, and the consent of the Federal Bureau of Prisons will include a
statement to the effect that the consummation of the transactions contemplated
by this Agreement (including the terms of the Operating Agreement) do not
violate the terms of the IGA. All permits, authorizations, consents, approvals
and waivers from other Governmental Authorities and other third parties
necessary to permit Seller and Buyer to consummate all of the transactions
contemplated hereby shall have been obtained.
SECTION 6.6 OPERATING AGREEMENT. The City shall have executed
the Operating Agreement and shall have delivered it to Seller.
SECTION 6.7 OPINION OF SELLER'S COUNSEL. Seller shall have
furnished to Buyer a favorable opinion of Bancroft, Mouton & Wolf, counsel to
Seller, dated the Closing Date, generally in the form set forth in Exhibit K-2
attached hereto with such changes thereto as counsel for the respective parties
may agree, which shall include an opinion to the effect that the consummation of
the transactions contemplated by this Agreement (including the terms and
14
conditions of the Operating Agreement) do not violate any law or regulation of
any Governmental Authority, except as consented to by the Federal Bureau of
Prisons and the City (as contemplated by Section 6.5).
SECTION 6.8 LEASES. The City shall have executed and delivered to
Davenport (i) the Interstate Lease (substantially in the form set forth on
Exhibit B-1 attached hereto), (ii) the Amended Airpark Sublease (substantially
in the form set forth on Exhibit C-2 attached hereto), (iii) the Airpark
Secondary Sublease (substantially in the form set forth on Exhibit C-3 attached
hereto), (iv) the Amended Flightline Sublease (substantially in the form set
forth on Exhibit D-2 attached hereto), and (v) the Flightline Secondary Sublease
(substantially in the form set forth on Exhibit D-3 attached hereto). The Leases
described in this Section 6.8 shall be in form and substance reasonably
satisfactory to Buyer.
SECTION 6.9 GOOD STANDING AND OTHER CERTIFICATES. Seller shall
have delivered to Buyer (a) copies of the Articles of Incorporation, including
all amendments thereto, in each case certified by the Secretary of State or
other appropriate official of the State of Texas, of Seller, (b) a certificate
from the Secretary of State or other appropriate official of the State of Texas,
dated within five days prior to the Closing Date, to the effect that Seller is
in good standing or subsisting in such jurisdiction and listing all charter
documents of Seller on file, (c) a certificate as to the tax status of Seller
from the appropriate official in the State of Texas, if different from the
certificate in subsection 6.9(b) hereof and (d) a copy of the Bylaws of Seller,
certified by the Secretary of Seller as being true and correct and in effect on
the Closing Date.
SECTION 6.10 EMPLOYEES. Substantially all of the City's employees
who are involved in the operation of the Business shall have accepted employment
with Buyer.
SECTION 6.11 CURRENT ACCOUNT BALANCE. The Current Account Balance
(as defined in Section 1.5(d)) shall not be less than zero as of the Closing
Date.
ARTICLE VII
FURTHER AGREEMENTS OF SELLER AND BUYER
SECTION 7.1 COSTS AND EXPENSES. Whether or not the transactions
contemplated hereby shall be consummated, each party shall pay the respective
fees, expenses and disbursements of such party and its respective agents,
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement.
SECTION 7.2 LIABILITIES NOT ASSUMED. Except as otherwise
expressly provided for herein, Seller expressly retains and shall be liable for
all liabilities, debts and obligations of Seller, including, without limitation,
any environmental liability of Seller, or any liability arising with respect to
the Personal Property, the Leases or the Business prior to the Closing Date, and
including all accounts payable, taxes of every kind, employee claims, workers'
compensation
15
claims, lawsuits, contractual obligations and all other liabilities, actual or
contingent, known or unknown, arising (a) prior to the Closing Date with respect
to the Personal Property, the Leases or the Business or (b) at any time to the
extent that the same arise with respect to Seller but not the Personal Property,
the Leases or the Business (collectively, the "Retained Liabilities").
SECTION 7.3 HEADQUARTERS BUILDING. The lease between Seller, as
lessee, and Davenport and Rutherford, as co-owners and lessors, with respect to
the real property located at 610 Main Street, Big Spring, Texas (the
"Headquarters Building") shall be amended to (i) substitute Buyer as lessee at
the rental rate currently set forth in the lease, (ii) recognize Buyer's
assumption of its obligations as tenant under the lease, (iii) change the term
of the lease to end on the second anniversary of the Closing Date, and (iv)
grant to Buyer the right to acquire the Headquarters Building from Davenport and
Rutherford, as co-owners, at any time prior to the second anniversary of the
Closing Date for $350,000, free and clear of all encumbrances.
SECTION 7.4 REVIEW OF THE COMPANIES. Buyer may, prior to the
Closing Date, through its representatives, review the assets, properties, books
and records of Seller and its financial and legal condition as Buyer deems
necessary or advisable to familiarize itself with such properties and other
matters. As of the date of this Agreement, Buyer has, through its
representatives, reviewed the assets, properties, books and records of Seller
and its financial and legal condition as Buyer deemed necessary or advisable to
familiarize themselves with such properties and other matters and has satisfied
itself as to the financial condition of Seller and the BSCC Fund. No such
review, whether conducted before or after the date of this Agreement, shall
affect, however, the representations and warranties made by Seller and Davenport
hereunder or the remedies of Buyer for breaches of those representations and
warranties. Seller shall permit Buyer and its representatives to have, after the
date of execution of this Agreement, full access to the premises and to all the
books and records of Seller and to cause the officers of Seller to furnish Buyer
with such financial and operating data and other information with respect to the
business, assets and properties of Seller as Buyer shall from time to time
reasonably request.
SECTION 7.5 CONFIDENTIALITY. In the event of termination of this
Agreement, Buyer shall keep confidential any information (including the terms of
this Agreement) relating to Seller (unless such information has generally been
made available to the public by persons other than Buyer, its representatives,
agents or employees) except as is necessary in connection with the preparation
of this Agreement, the arrangement of financing for the transactions
contemplated by this Agreement, or as may be required by applicable law.
SECTION 7.6 TAX REPORTING. Seller and Buyer agree to coordinate
their respective preparation and filing of IRS Form 8594 and, if required,
supplemental IRS Forms 8594, and any other forms or information statements or
schedules required to be filed under Section 1060 of the Internal Revenue Code
of 1986, as amended, and the applicable regulations thereunder with respect to
the allocation of the Purchase Price among the assets acquired by Buyer pursuant
to this Agreement so that the allocations and information reflected on such
forms, statements and schedules shall be consistent.
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ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 INDEMNIFICATION OF PARTIES. Neither Seller nor Buyer
will be obligated to make any payment of indemnity under this Agreement except
pursuant to the procedures set forth in this Article VIII.
(a) INDEMNIFICATION OF BUYER. Seller agrees to indemnify and
defend Buyer against, and hold Buyer harmless from, any claim, lawsuit,
liability, loss, damage, expense, penalty, fine or interest (including
reasonable attorneys' fees and costs ("Loss" and collectively, "Losses")
incurred by Buyer after the Closing Date arising (i) from any inaccuracy
in or breach of any of the representations, warranties or covenants made
by Seller herein, (ii) before, on or after the Closing Date and
resulting from any Loss arising from any of Seller's employees or former
employees, including, but not limited to, any termination by Seller of
any employee and any claim under or in connection with any Plan, but
excluding any claim by an employee of Seller who accepts employment with
Buyer to the extent that the claim arose with respect to an occurrence
arising after the Closing Date, (iii) before, on or after the Closing
Date, and arising from any of the Retained Liabilities (as defined in
Section 7.2) (any such Loss or Losses being referred to herein as a
"Buyer Indemnified Loss" or "Buyer Indemnified Losses").
(b) INDEMNIFICATION OF SELLER. Buyer agrees to indemnify and
defend Seller against, and hold Seller harmless from, any Loss or Losses
incurred by Seller after the Closing Date (any such Loss or Losses being
referred to herein as a "Seller Indemnified Loss" or "Seller Indemnified
Losses") arising (i) from any inaccuracy in or breach of any of the
representations, warranties or covenants made by Buyer herein and (ii)
from or related to the Personal Property, the Business, the Operating
Agreement, or the Leases, which Loss or Losses arise on or after the
Closing Date. Cornell agrees to indemnify and defend Seller for any
Seller Indemnified Losses arising from any inaccuracy in or breach of
any representations, warranties or covenants made by Cornell herein.
SECTION 8.2 SURVIVAL. The representations and warranties set
forth in this Agreement and in any certificate or instrument delivered in
connection herewith shall terminate and expire one (1) year after the Closing
Date, after which no party may institute any action or present any claim for a
breach of such representations or warranties. The covenants and agreements set
forth in this Agreement will survive until the expiration of the applicable
statute of limitations period (including all periods of extension or tolling),
after which respective time periods no party may institute any action or present
any claim for a breach of such covenant or agreement.
17
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 GROUNDS FOR TERMINATION. This Agreement may be
terminated at any time prior to the Closing Date:
(a) By the mutual written agreement of Seller and Buyer;
(b) By Seller by notice thereof to Buyer if (i) the conditions to
the obligations of Seller to proceed with the Closing which are
contained in Article V are not satisfied on or before September 30,
1996, or (ii) this Agreement has been breached in any material respect
by Buyer; or
(c) By Buyer by notice thereof to Seller if (i) the conditions to
the obligations of Buyer to proceed with the Closing which are contained
in Article VI are not satisfied on or before September 30, 1996, or (ii)
this Agreement has been breached in any material respect by Seller or by
Davenport;
PROVIDED THAT, neither party may terminate this Agreement pursuant to Section
9.1(b) or Section 9.1(c) if such failure to close or such unsatisfied condition
is due to the willful failure of such party to perform or observe any of the
covenants, agreements and conditions to be performed or observed by such party
pursuant to this Agreement. If this Agreement is terminated pursuant to Section
9.1, this Agreement shall terminate without further liability of any party to
another; PROVIDED HOWEVER, that, the provisions of Section 7.1 (regarding
expenses), Section 7.5 (regarding confidentiality) and Article XI (regarding the
Option Fee Amount) shall survive any such termination.
SECTION 9.2 AMENDMENT. This Agreement may be amended by the
parties at any time but may not be amended except by an instrument signed on
behalf of each of the parties.
ARTICLE X
NONCOMPETITION
SECTION 10.1 SELLER'S COVENANT NOT TO COMPETE. Seller agrees
that, until five years after the date of this Agreement, Seller will not:
(a) Within the State of Texas, the State of New Mexico and any
other jurisdiction or marketing area in which Buyer or any of its
affiliates does business, directly or indirectly, own, manage, operate,
control, participate in the ownership, management, operation or control
of, or be connected in any manner with, any business of the type and
character engaged in and competitive with that conducted by Seller as of
the date of this
18
Agreement. For purposes of this Section 10.1(a), ownership of securities
of not in excess of 5% of any class of securities of a company whose
securities are registered under the Securities Exchange Act of 1934
shall not be considered to be competitive with Buyer or any of its
affiliates;
(b) Persuade or attempt to persuade any potential customer or
client to which Buyer, Seller or any of their affiliates have made a
presentation, or with which Buyer, Seller or any of their affiliates
have been having discussion, not to hire Buyer or any of its affiliates,
or to hire another company; or
(c) Solicit for itself or any person other than Buyer or any of
its affiliates the business of any company which is a customer or client
of Buyer, Seller or any of their affiliates;
(d) Persuade or attempt to persuade any employee of Buyer or any
of its affiliates or any individual who was an employee of Buyer, Seller
or any of their affiliates to leave Buyer's or its affiliates' employ,
or to become employed by any person other than Buyer or any of its
affiliates; or
(e) Disclose to any person or otherwise use or exploit any of the
proprietary or confidential information or knowledge, including, without
limitation, trade secrets, files, records of research, proposals,
reports, memoranda, business methods and techniques, computer software
or programming, budgets or other financial plans or information,
regarding Buyer, Seller or any of their affiliates and its business,
properties or affairs obtained by it at any time prior to or subsequent
to the execution of this Agreement.
SECTION 10.2 FBOP. Seller agrees that, until the later of (i)
five years after the date of this Agreement and (ii) the expiration of the
Operating Agreement, Seller will not enter into any contract or agreement with
the City or the Federal Bureau of Prisons.
SECTION 10.3 NAME. Seller agrees that it will not use or permit
the name "MIDTEX" to be used in any business enterprise with which Seller may be
affiliated.
SECTION 10.4 SEVERABILITY. It is the desire and intent of each of
the parties that the provisions of this Article X shall be enforced to the
fullest extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
portion of Article X shall be adjudicated to be invalid or unenforceable,
Article X shall be deemed amended to (i) reform the particular portion to
provide for such maximum restrictions as will be valid and enforceable, or if
that is not possible, then (ii) delete therefrom the portion thus adjudicated to
be invalid or unenforceable. The parties expressly acknowledge and agree that
the duration and areas for which this noncompetition covenant is to be effective
are reasonable. In the event that any court or arbitration panel of competent
jurisdiction determines that the time period or the area is unreasonable and
that such covenant is to that extent unenforceable, the
19
parties agree that the covenant shall remain in full force and effect for the
greatest time period and in the greatest area that would not render it
unenforceable.
SECTION 10.5 EQUITABLE RELIEF. Seller acknowledges that Article X
hereof is expressly for the benefit of Buyer and its affiliates, that Buyer and
its affiliates would be irreparably injured by a violation of Article X hereof,
and that Buyer and its affiliates would have no adequate remedy at law in the
event of such violation. Therefore, Seller acknowledges and agrees that
injunctive relief, specific performance or any other appropriate equitable
remedy are appropriate remedies to enforce compliance by Seller and its
affiliates with Article X hereof.
ARTICLE XI
OPTION FEE
SECTION 11.1 OPTION FEE. Seller acknowledges that Cornell
Corrections, Inc. has paid to The Commercial National Bank of Brady ("Bank")
$100,000 in connection with the execution and delivery of the letter agreement
dated February 20, 1996 by and between Seller, Davenport, Rutherford and Cornell
Corrections, Inc., parent of Buyer, relating to the transactions contemplated by
this Agreement. Seller acknowledges that Cornell Corrections, Inc. has paid to
Bank $1,900,000 (collectively, with the $100,000, the $2,000,000 is referred to
herein as the "Option Fee Amount") in connection with the execution of this
Agreement. The Option Fee Amount shall be held by Bank and disposed of in
accordance with this Article XI.
SECTION 11.2 INVESTMENT OF OPTION FEE AMOUNT; INSTRUCTIONS.
Seller and Buyer agree to invest the Option Fee Amount in an interest-bearing
account at Bank. All interest earnings with respect to the Option Fee Amount
shall be paid to Buyer on a [monthly] basis. Buyer shall pay any income tax
attributable to the interest income earned on the Option Fee Amount and shall
provide Bank with its federal tax identification number for the purpose of
reporting the interest income earned with respect to the Option Fee Amount.
Davenport and Buyer shall jointly instruct Bank regarding the payment of the
principal amount of the Option Fee Amount pursuant to the terms of this Article
XI. Buyer shall pay all Bank charges arising from Bank's services as escrow
agent under this Article XI.
SECTION 11.3 CLOSING. Upon the Closing, Davenport shall be
entitled to the Option Fee Amount.
SECTION 11.4 SELLER'S RECEIPT OF OPTION FEE. Davenport shall be
entitled to the Option Fee Amount if the Closing does not occur, and such
nonoccurrence is solely as a result of (a) the failure of Buyer to perform its
duties and obligations under this Agreement or (b) the non-satisfaction of any
condition to closing that is within the control of the Buyer.
SECTION 11.5 BUYER'S RECEIPT OF OPTION FEE. In the event
that the Closing does not occur, and such non-occurrence is not solely as a
result of (a) the failure of Buyer to perform
20
its duties and obligations under this Agreement or (b) the non-satisfaction of
any condition to closing that is within the control of the Buyer, the Buyer
shall be entitled to the Option Fee Amount.
ARTICLE XII
GENERAL PROVISIONS
SECTION 12.1 EXCLUSIVE AGREEMENT; THIRD PARTY BENEFICIARIES. This
Agreement (a) supersedes all prior agreements between the parties (written or
oral), (b) is intended as a complete and exclusive statement of the terms of the
agreement between the parties to this Agreement and (c) does not and is not
intended to confer on any person other than the parties to this Agreement any
rights or remedies.
SECTION 12.2 ARTICLE AND SECTION HEADINGS. Article and Section
headings are for convenience only and shall not be considered in construing this
Agreement.
SECTION 12.3 GOVERNING LAW. This Agreement shall be construed
under and in accordance with the laws of the State of Texas.
SECTION 12.4 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
SECTION 12.5 EXHIBITS/SCHEDULES. All exhibits and schedules
attached to this Agreement shall be deemed to be incorporated herein and made a
part hereof.
SECTION 12.6 BINDING EFFECT. This Agreement shall be binding on,
and inure to the benefit of, the legal representatives, successors and assigns
of the respective parties.
SECTION 12.7 ASSIGNMENT. Except as otherwise provided herein, the
rights, privileges and responsibilities of the parties under the terms of this
Agreement shall not be assignable by either party unless written consent from
the other party shall have been first obtained. Buyer may assign its rights
under this Agreement to any direct or indirect wholly-owned subsidiary of Buyer
with the consent of Seller, which consent will not be unreasonably withheld.
SECTION 12.8 NOTICES. Any notice or communication given pursuant
hereto by either party to the other party shall be in writing and delivered or
mailed certified mail, postage prepaid, return receipt requested, or transmitted
by facsimile as follows:
21
If to Seller or to Davenport: MIDTEX DETENTIONS, INC.
610 Main
Big Spring, Texas 79720
Attention: Mr. Johnny Rutherford,
President
Telephone: (915) 264-0060
Facsimile: (915) 267-6522
with a copy to (which shall not constitute sufficient notice for purposes of
this Section 12.8):
Bancroft, Mouton & Wolf
109 West Fourth Street
P.O. Box 1030
Big Spring, Texas 79721-1030
Attention: Mr. Drew Mouton
Telephone: (915) 267-2505
Facsimile: (915) 263-6782
If to Buyer: Cornell Corrections of Texas, Inc.
4801 Woodway, Suite 400W
Houston, Texas 77056
Attention: Mr. David M. Cornell,
President
Telephone: (713) 623-0790
Facsimile: (713) 623-2853
with a copy to (which shall not constitute sufficient notice for purposes of
this Section 12.8):
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana Street
Houston, Texas 77002
Attention: Mr. Wade H. Whilden
Telephone: (713) 229-1484
Facsimile: (713) 229-1522
or to such alternate person at such other address as hereafter shall be
designated by a party for itself by a notice in writing sent to the other party
hereto.
SECTION 12.9 FURTHER ASSURANCES. Seller and Buyer shall execute,
acknowledge and deliver, or shall cause to be executed, acknowledged and
delivered, all such other and additional instruments, and will take such other
action on and after the Closing Date, as may be necessary to effectuate the
transactions contemplated hereby.
SECTION 12.10 BROKERS. Except for Equitable, Seller and Buyer
each represent to the other that neither Buyer nor Seller has, directly or
indirectly, employed any broker, finder or
22
intermediary in connection with the transactions who might be entitled to a fee
or commission upon the execution of this Agreement or consummation of any of the
transactions contemplated hereby. Buyer and Seller shall bear equally any
amounts owed to Equitable for services with respect to the transactions
contemplated by this Agreement; provided, however, that Seller shall not be
obligated to pay more than $50,000 for the services of Equitable. Davenport
represents to Buyer that Davenport has not, directly or indirectly, employed any
broker, finder or intermediary in connection with the transactions who might be
entitled to a fee or commission upon execution of this Agreement or consummation
of any of the transactions contemplated hereby. Davenport shall bear none of the
obligation owing to Equitable.
SECTION 12.11 SEVERABILITY. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement will
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto will
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner so that the
transactions contemplated hereby are fulfilled to the greatest extent possible.
SECTION 12.12 PUBLICITY. Except as otherwise required by law,
none of the parties hereto shall issue any press release or make any other
public statement, in each case relating to, connected with or arising out of
this Agreement or the matters contained herein, without obtaining the prior
approval of Buyer and Seller as to the contents and the manner of presentation
and publication thereof.
SECTION 12.13 ARBITRATION. Any controversy or claim arising out
of or relating to this Agreement, or the breach thereof, including, but not
limited to, a claim for indemnification pursuant to Article VIII hereof, shall
be settled by binding arbitration in accordance with the rules of the American
Arbitration Association, and judgment upon the award rendered by the arbitrators
may be entered in any court of competent jurisdiction. Any such controversy or
claim shall be submitted to an arbitrator agreed to by Buyer and Seller; or, if
they cannot agree on an arbitrator, an arbitrator shall be selected for them by
the American Arbitration Association, and such arbitration shall be held in Big
Spring, Texas. Such arbitration shall be concluded within 30 days of submission
to arbitration.
SECTION 12.14 BEST EFFORTS. All parties hereto agree to use their
best efforts to fulfill the requirements of Articles V and VI as soon as
practicable.
SECTION 12.15 CONSTRUCTION. Words used herein in the singular,
where the context so permits, shall be deemed to include the plural and vice
versa. The definition of words in the singular herein shall also apply to such
words when used in the plural where the context so permits, and vice versa.
Whenever used herein, where the context so permits, the masculine or neuter
gender shall include the masculine, feminine or neuter gender. The words
"hereby,"
23
"herein," "hereof," "hereunder" and words of similar import when used in this
Agreement refer to this Agreement as a whole, and not to any particular Article
or Section.
This Agreement has been executed by Seller and Buyer by their
duly authorized officers effective as of the date first above written.
MIDTEX DETENTIONS, INC.,
a Texas corporation
By /S/ JOHNNY RUTHERFORD
Johnny Rutherford,
President
ED DAVENPORT
/S/ ED DAVENPORT
CORNELL CORRECTIONS OF TEXAS, INC.,
a Delaware corporation
By /S/ DAVID M. CORNELL
David M. Cornell,
President
For purposes of Sections 1.2(e),
1.2(g) and 7.3 only:
JOHNNY RUTHERFORD
/S/ JOHNNY RUTHERFORD
24
For purposes of Sections 1.4 and
4.2(c) only:
CORNELL CORRECTIONS, INC.,
a Delaware corporation
By /S/ DAVID M. CORNELL
David M. Cornell,
President
25
AMENDMENT TO
ASSET PURCHASE AGREEMENT
This AMENDMENT TO ASSET PURCHASE AGREEMENT (this "Agreement") is made
and entered into as of this 9th day of July, 1996, by and between each of
CORNELL CORRECTIONS OF TEXAS, INC., a Delaware corporation ("Buyer"), CORNELL
CORRECTIONS, INC., a Delaware corporation ("Cornell "), ED DAVENPORT
("Davenport"), JOHNNY RUTHERFORD ("Rutherford"), and MIDTEX DETENTIONS, INC., a
Texas corporation ("Seller");
W I T N E S S E T H:
WHEREAS, Buyer, Cornell, Davenport, Rutherford, and Seller entered into
that certain Asset Purchase Agreement, dated May 22, 1996 (the "Original
Agreement");
WHEREAS, the parties desire to amend the Original Agreement;
NOW, THEREFORE, in consideration of the respective representations,
warranties, covenants, agreements and other provisions contained in this
Agreement, the parties agree as follows:
ARTICLE I
1. RENT PRORATION. Section 1.5(c) of the Original Agreement shall be
amended to read as follows:
(c) The term Contingent Purchase Price shall mean (i) the lesser of (1)
$500,000 and (2) the excess of (A) the Current Account Balance (as defined in
Section 1.5(d)), over (B) $1 million, less (ii) the amount of rent prepaid, if
any, with respect to the Airpark Sublease and the Flightline Sublease (ignoring
for this purpose the terms of the Amended Airpark Sublease and the Amended
Flightline Sublease) for the period from the Closing Date to the end of the
month that includes the Closing Date, plus (iii) the amount of rent owed and not
paid, if any, with respect to the Airpark Sublease and the Flightline Sublease
(ignoring for this purpose the terms of the Amended Airpark Sublease and the
Amended Flightline Sublease) for the period beginning on the first day of the
month that includes the Closing Date and ending as of the Closing Date, plus
(iv) simple interest at 5% per annum from the Closing Date to the payment date
described in Section 1.4 on the excess of the sum of the amounts described in
clause (i) and clause (iii) over the amount described in clause (ii).
2. BONUS AMOUNT. Section 4.2(c) of the Original Agreement shall be
amended to read as follows:
(c) EMPLOYEE BONUSES. Buyer shall pay a bonus to employees currently
involved in the Business who resign from their employment with the City and
accept employment with Buyer, and such bonus shall be in consideration for
such resignation and acceptance. The total bonus amount (including all
out-of-pocket tax and withholding
1
costs to Buyer) shall be $600,000, and the bonus shall be payable 50%
within 60 days following the Closing Date and 50% to such employees who
shall remain in the employ of Buyer on the second anniversary of the
Closing Date. Buyer shall deposit $300,000 in a restricted account to be
used solely to pay the bonus on the second anniversary of the Closing Date.
The amounts of each bonus to an employee shall be determined by Buyer,
considering each employee-recipient's contribution to the Texas Municipal
Retirement System.
3. LIABILITIES -- EFFECTIVE DATE. Section 7.2 of the Original
Agreement shall be amended to read as follows:
SECTION 7.2 LIABILITIES NOT ASSUMED. Except as otherwise expressly
provided for herein, Seller expressly retains and shall be liable for all
liabilities, debts and obligations of Seller, including, without limitation, any
environmental liability of Seller, or any liability arising with respect to the
Personal Property, the Leases or the Business prior to July 1, 1996, and
including all accounts payable, taxes of every kind, employee claims, workers'
compensation claims, lawsuits, contractual obligations and all other
liabilities, actual or contingent, known or unknown, arising (a) prior to July
1, 1996 with respect to the Personal Property, the Leases or the Business or (b)
at any time to the extent that the same arise with respect to Seller but not the
Personal Property, the Leases or the Business (collectively, the "Retained
Liabilities").
4. INDEMNIFICATION -- EFFECTIVE DATE. Section 8.1 of the Original
Agreement shall be amended to read as follows:
SECTION 8.1 INDEMNIFICATION OF PARTIES. Neither Seller nor Buyer will
be obligated to make any payment of indemnity under this Agreement except
pursuant to the procedures set forth in this Article VIII.
(a) INDEMNIFICATION OF BUYER. Seller agrees to indemnify and defend
Buyer against, and hold Buyer harmless from, any claim, lawsuit, liability,
loss, damage, expense, penalty, fine or interest (including reasonable
attorneys' fees and costs ("Loss" and collectively, "Losses") incurred by
Buyer after July 1, 1996 arising (i) from any inaccuracy in or breach of
any of the representations, warranties or covenants made by Seller herein,
(ii) before, on or after July 1, 1996 and resulting from any Loss arising
from any of Seller's employees or former employees, including, but not
limited to, any termination by Seller of any employee and any claim under
or in connection with any Plan, but excluding any claim by an employee of
Seller who accepts employment with Buyer to the extent that the claim arose
with respect to an occurrence arising after July 1, 1996, (iii) before, on
or after July 1, 1996, and arising from any of the Retained Liabilities (as
defined in Section 7.2) (any such Loss or Losses being referred to herein
as a "Buyer Indemnified Loss" or "Buyer Indemnified Losses").
(b) INDEMNIFICATION OF SELLER. Buyer agrees to indemnify and defend
Seller against, and hold Seller harmless from, any Loss or Losses incurred
by Seller after July 1, 1996 (any such Loss or Losses being referred to
herein as a "Seller Indemnified Loss" or "Seller Indemnified Losses")
arising (i) from any inaccuracy in or breach of any of
2
the representations, warranties or covenants made by Buyer herein and (ii)
from or related to the Personal Property, the Business, the Operating
Agreement, or the Leases, which Loss or Losses arise on or after July 1,
1996. Cornell agrees to indemnify and defend Seller for any Seller
Indemnified Losses arising from any inaccuracy in or breach of any
representations, warranties or covenants made by Cornell herein.
5. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
6. BINDING EFFECT. This Agreement shall be binding on, and inure to
the benefit of, the legal representatives, successors and assigns of the
respective parties.
7. CONSTRUCTION. Words used herein in the singular, where the context
so permits, shall be deemed to include the plural and vice versa. The definition
of words in the singular herein shall also apply to such words when used in the
plural where the context so permits, and vice versa. Whenever used herein, where
the context so permits, the masculine or neuter gender shall include the
masculine, feminine or neuter gender. The words "hereby," "herein," "hereof,"
"hereunder" and words of similar import when used in this Agreement refer to
this Agreement as a whole, and not to any particular Article or Section.
This Agreement has been executed by the parties effective as of the
date first above written.
MIDTEX DETENTIONS, INC.,
a Texas corporation
By /S/ JOHNNY RUTHERFORD
Johnny Rutherford,
President
ED DAVENPORT
/S/ ED DAVENPORT
CORNELL CORRECTIONS OF TEXAS, INC.,
a Delaware corporation
By /S/ STEVEN W. LOGAN
Steven W. Logan,
3
Secretary
For purposes of complying with Section 9.2 only:
JOHNNY RUTHERFORD
/S/ JOHNNY RUTHERFORD
CORNELL CORRECTIONS, INC.,
a Delaware corporation,
By /S/ STEVEN W. LOGAN
Steven W. Logan,
Secretary
4
EXHIBIT 10-17
LEASE
THIS LEASE, dated August 1, 1987 is made and entered into by and
between BAKER HOUSING COMPANY, a California General Partnership (hereinafter
called "Landlord") and ECLECTIC COMMUNICATIONS, INC., a California Corporation
(hereinafter called "Tenant").
ARTICLE ONE: PROPERTY
Section 1.01. DESCRIPTION. The Property consists of approximately
thirty (30) acres of land located in an unincorporated area of the County of San
Bernardino, State of California, legally described as follows: The Westerly 1/2
of the Northwest 1/4 of the Southwest 1/4 of Section 20, and the Westerly 1/2 of
the Easterly 1/2 of the Northwest 1/4 of the Southwest 1/4 of Section 20,
Township 14 North, Range 9 East, San Bernardino Base and Meridian, according to
the official Plat thereof. The Property is zoned "DL" and is improved with
fifty-three (53) free-standing single family residences (which contain certain
appliances and furnishings which are described in Attachment "A" hereto), a
recreation hall, office building, and certain other improvements.
As used in this Lease, the term "Property" refers to the land,
all improvements thereon, and all personal property therein.
Section 1.02. LEASE OF PROPERTY. Landlord leases the Property to
Tenant and Tenant leases the Property from Landlord upon the terms and
conditions set forth in this Lease.
ARTICLE TWO: TERM; OPTION TO EXTEND
Section 2.01. COMMENCEMENT AND EXPIRATION. The term of this Lease
(the "Lease Term") is five (5) years, commencing on the "Commencement Date"
described herein and ending on a date which is four years and 365 days
thereafter (the "Expiration Date"), unless sooner terminated or extended as
provided in this Lease. The phrase Lease Term shall include any extensions of
this Lease pursuant to the option described in Section 2.06 hereof, but not
later than sixty (60) days thereafter. The Commencement Date shall be August 1,
1987 provided this Lease is signed on or before July 31, 1987. Tenant has
notified Landlord that on or about July 21, 1987 it executed a contract with the
State of California - Department of Corrections (the "CDC Contract"), for the
use of the Property by Tenant as a facility operated under the State's "return
to custody" program and named "Baker RTC Facility".
Section 2.02. DELAY IN COMMENCEMENT. Landlord shall not be liable
to Tenant if Landlord does not deliver possession of the Property to Tenant on
the Commencement Date due to causes beyond the reasonable control of Landlord.
Landlord's non-delivery of' the Property to Tenant on that date shall not affect
this Lease or the obligations of Tenant under this Lease. However, the
Commencement Date shall be delayed until possession of the Property is delivered
to
1
Tenant. The Lease Term shall be extended for a period equal to the delay in
delivery of possession of the Property to Tenant, plus the number of days
necessary to end the Lease Term on the last day of a month. If Landlord does not
deliver possession of the Property to Tenant within sixty (60) days after the
date that the CDC Contract is executed, Tenant may elect to cancel this Lease by
giving written notice to Landlord within thirty (30) days after the 60-day
period ends. In the event that the delay in possession is caused by a "force
majeure" as described in Section 13.11 hereof, Landlord shall have no more than
an additional thirty (30) days to deliver possession of the Property to Tenant.
If Tenant gives such notice, the Lease shall be cancelled and neither Landlord
nor Tenant shall have any further obligations to the other, except that any
Security Deposit or rent paid in advance to Landlord shall be immediately
returned to Tenant. If Tenant does not give such notice, Tenant's right to
cancel the Lease shall expire and the Lease Term shall commence upon the
delivery of possession of the Property to Tenant. If delivery of possession of
the Property to Tenant is delayed, Landlord and Tenant shall, upon such
delivery, execute an amendment to this Lease setting forth the new Commencement
Date and Expiration Date of the Lease.
Section 2.03. EARLY OCCUPANCY. If Tenant occupies the Property
prior to the Commencement Date, Tenant's occupancy of the Property shall be
subject to all of the provisions of this Lease. Early occupancy of the Property
shall not advance the Expiration Date of this Lease. Tenant shall pay Rent and
all other charges specified in this Lease for the early occupancy period.
Notwithstanding the foregoing, Tenant shall be permitted to make certain
improvements to the Property, as approved by Landlord, prior to the Commencement
Date, and the making of such improvements shall not be considered early
occupancy.
Section 2.04. HOLDING OVER. Tenant shall vacate the Property upon
the expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages incurred by Landlord
from any delay by Tenant in vacating the Property. If Tenant does not vacate the
Property upon the expiration or earlier termination of the Lease and Landlord
thereafter accepts rent from Tenant, Tenant's occupancy of the Property shall be
a "month-to-month" tenancy, subject to all of the terms of this Lease applicable
to a month-to-month tenancy, except that the Base Rent then in effect shall be
increased by twenty-five percent (25%).
Section 2.05. OPTION TO EXTEND TERM. Landlord hereby grants to
Tenant two (2) options to extend the Lease Term for additional terms of five (5)
years each (the "Extensions"), on the same terms and conditions as set forth in
the Lease (except for this Section relating to the options to extend the Lease
Term), but at the increased Rent as set forth below. Each Option shall be
exercised only by written notice delivered to Landlord at least sixty (60) days
before the Expiration Date or the expiration of the preceding Extension, as the
case may be. Provided, however, that if Tenant is notified by the State of
California of the State's intention to renew or extend the term of the CDC
Contract at an earlier date, then the notice to Landlord must be given at such
time as the notice is received from the State of California under the CDC
Contract. If Tenant fails to deliver Landlord written notice of the exercise of
an Option within the prescribed time period, such Option and any succeeding
Option shall lapse, and the Lease Term shall expire as if such Option were not
exercised. Each Option shall be exercisable by Tenant on the express condition
that at the time of
2
the exercise, and at all times subsequent to the time of exercise and prior to
the commencement of the Extension, Tenant shall not be in default under any of
the provisions of this Lease. The Base Rent shall be increased on the first day
of the first and 30th months of each Extension of the Lease Term (the "Rental
Adjustment Date") by reference to the Index defined in Section 3.02 of the
Lease, as follows: The Base Rent in effect immediately prior to the applicable
Rental Adjustment Date (the "Comparison Base Rent") shall be increased by the
percentage that the Index has increased from the month in which the payment of
the Comparison Base Rent commenced through the month in which the applicable
Rental Adjustment Date occurs. In no event shall the Base Rent be reduced by
reason of such computation.
ARTICLE THREE: BASE RENT
Section 3.01. TIME AND MANNER OF PAYMENT. The Base Rent payable
by Tenant to Landlord under this Lease is Thirty Thousand Dollars ($30,000) per
month. In addition, Tenant shall pay Landlord the sum of Seven Hundred
Thirty-Six and 72/100 Dollars ($736.72) per month, to reimburse Landlord for the
Base Real Property Taxes (as defined in Section 4. 02 hereof). Tenant shall also
pay Landlord the sum of Twenty-Seven Thousand Eight Hundred Twenty-Eight Dollars
($27,828) per year, payable Five Thousand Three Hundred Seventy-Three Dollars
($5,373) on the Commencement Date and each anniversary of the Commencement Date
and Two Thousand Four Hundred Ninety-Five Dollars ($2,495) on the first day of
each subsequent month for nine (9) consecutive months resuming again on the
first day of each month subsequent to the anniversary of the Commencement Date
for nine (9) consecutive months in each year, to reimburse Landlord for the Base
Premiums (as defined in Section 4.04 hereof) for the insurance policies to be
maintained by Landlord under Section 4.04(b) hereof. The reimbursements payable
to Landlord under this Section shall be considered Additional Rent. On the
Commencement Date, Tenant shall pay Landlord the Base Rent and Additional Rent
provided by this Section for the first month of the Lease Term. On the first day
of the second month of the Lease Term and each month thereafter, Tenant shall
pay Landlord the Base Rent and Additional Rent provided by this Section, in
advance, without offset, deduction or prior demand. Rent shall be payable at
Landlord's address or at such other place as Landlord may designate in writing.
Section 3.02. COST OF LIVING INCREASES. The Base Rent shall be
increased (or decreased) on the first day of the 30th month after the
Commencement Date in proportion to the increase (or decrease) in the Index (as
defined herein) which has occurred between the first month of the Lease Term and
the month in which the Base Rent is to be increased (or decreased). As used
herein, the "Index" shall mean the United States Department of Labor, Bureau of
Labor Statistics Consumer Price Index for Urban Wage Earners and Clerical
Workers (All Items for the Los Angeles- Long Beach - Anaheim statistical area on
the basis of 1967=100). Landlord shall notify Tenant of the increase (or
decrease) by delivering a written statement setting forth the Index for the
first month of the Lease Term, the Index for the month in which the Base Rent is
to be increased (or decreased), the percentage increase (or decrease) between
those two Indices, and the new amount of the Base Rent. In no event shall the
Base Rent be reduced by reason of any decrease in the Index below the Base Rent
set forth in Section 3.01 hereof. Tenant shall pay the new Base Rent from its
3
effective date until the Expiration Date. Landlord's notice may be given after
the effective date of the increase (or decrease) since the Index for the
appropriate month may be unavailable on the effective date. In such event,
Tenant shall pay Landlord the necessary rental adjustment for the months elapsed
between the effective date of any increase and Landlord's notice of such
increase within thirty (30) days after Landlord's notice. Any adjustment due to
a decrease shall be credited against the next maturing payments of Base Rent. If
the format or components of the Index are materially changed after the date of
this Lease, Landlord shall substitute an index which is published by the Bureau
of Labor Statistics or similar agency and which is most nearly equivalent to the
Index in effect on the Date of Lease. Landlord shall notify Tenant of the
substituted index, which shall be used to calculate the increase (or decrease)
in the Base Rent.
Section 3.03. SECURITY DEPOSIT. Upon execution of this Lease,
Tenant shall deposit with Landlord a cash Security Deposit in the amount of
Thirty Thousand Dollars ($30,000). Landlord may apply all or part of the
Security Deposit to any unpaid Rent or other charges due from Tenant or to cure
any other defaults of Tenant. If Landlord uses any part of the Security Deposit,
Tenant shall restore the Security Deposit to its full amount within ten (10)
days after Landlord's written request, and the failure to do so shall be
considered a material default under this Lease. No interest shall be paid on the
Security Deposit and Landlord shall not be required to keep the Security Deposit
separate from its other accounts, and no trust relationship is created with
respect thereto. If Tenant shall fully and faithfully perform every provision of
this Lease, the Security Deposit or any unapplied balance thereof shall be
returned to Tenant (or the last assignee of Tenant's interest hereunder) at the
expiration of this Lease. In the event that the Property is sold or otherwise
disposed of by Landlord, the Security Deposit may be transferred to Landlord's
successor in interest, whereupon Landlord shall have no further liability or
obligation with respect to such Security Deposit.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
Section 4.01. ADDITIONAL RENT. All charges payable by Tenant
other than Base Rent are called "Additional Rent." Unless this Lease provides
otherwise, all Additional Rent shall be paid with the next monthly installment
of Base Rent. The term "Rent" as used in this Lease shall mean Base Rent and
Additional Rent.
Section 4.02. REAL PROPERTY TAXES.
(a) PAYMENT OF TAXES. Landlord shall pay the "Base Real Property
Taxes" on the Property during the Lease Term. Base Real Property Taxes are real
property taxes applicable to the Property as shown on the tax bill for the tax
fiscal year ending June 30, 1987. Tenant shall pay Landlord the amount, if any,
by which the real property taxes during the Lease Term exceed the Base Real
Property Taxes. Upon receipt of notice from Landlord of any increase in real
property taxes over the Base Real Property Taxes, supported by a copy of the tax
bill or other evidence of the new real property taxes, Tenant shall pay to
Landlord within thirty (30) days an amount equal to 1/12 of such increase
multiplied by the number of months between the beginning of the tax fiscal year
for
4
which such increase applies and the month that such notice is given to Tenant,
both months included. Commencing on the first day of the month after the month
in which such notice is given to Tenant, concurrently with the payment of Base
Rent, Tenant shall pay to Landlord an additional amount equal to 1/12 of the
amount of such increase. Such payments shall continue until such time as Tenant
receives notice from Landlord of another increase in real property taxes, at
which time similar adjustments shall be made. There shall be a final adjustment,
if necessary, upon the expiration of the Lease Term.
(b) DEFINITION OF "REAL PROPERTY TAX". "Real Property Tax" means:
(i) any fee, license fee, license tax, business license fee, commercial rental
or, levy, charge, assessment, penalty or tax imposed by any taxing authority
against the Property; (ii) any tax on the Landlord's right to receive, or the
receipt of, rent or income from the Property or against Landlord's business of
leasing the Property; (iii) any tax or charge for fire protection, streets,
sidewalks, road maintenance, refuse or other services provided to the Property
by any governmental agency; (iv) any tax imposed upon this transaction; and (v)
any charge or fee replacing any tax previously included within the definition of
real property tax. " Real Property Tax" does not, however, include Landlord's
federal, state or local income, franchise, gift, inheritance or estate taxes,
and shall not include any tax based upon a reassessment of the Property due to a
change in ownership or transfer of all or part of Landlord's interest in the
Property.
(c) PERSONAL PROPERTY TAXES.
(i) Tenant shall pay all taxes charged against fixtures,
furnishings, equipment or any other personal property belonging to Landlord
which is included with this Lease. Such taxes shall be paid to Landlord within
thirty (30) days after Tenant receives a written statement from Landlord which
shows the amount of personal property taxes then due, supported by copies of
bills from the appropriate governmental taxing authority.
(ii) Tenant shall pay all taxes charged against fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall use best efforts to have its personal property taxed separately
from the Property.
(iii) If any of Tenant's personal property is taxed with
the Property, Tenant shall pay Landlord the taxes for the personal property
within thirty (30) days after Tenant receives a written statement from Landlord
for such personal property taxes.
(d) ADDITIONAL ASSESSMENTS. Tenant shall pay any additional Real
Property Tax assessed against the Property for the tax fiscal year ending June
30, 1987, or thereafter, resulting from any improvements made to the Property
pursuant to this Lease, whether such improvements are made by Landlord or
Tenant.
Section 4.03. UTILITIES. Tenant shall have all utilities placed
into its name immediately after execution of this Lease. Tenant shall pay,
directly to the appropriate supplier, the
5
cost of all
natural gas, heat, light, power, sewer service, telephone, water, refuse
disposal and other utilities and services supplied to the Property.
Section 4.04. INSURANCE PREMIUMS.
(a) LIABILITY INSURANCE. During the Lease Term, Tenant shall, at
Tenant's expense, maintain a policy of workers compensation insurance as
required by law, and a policy of comprehensive general liability insurance,
insuring Landlord against liability, injury or death of any person arising out
of Tenant's operations on the Property. The initial amount of such insurance
shall be at least $2,000,000 combined single limit for bodily injury and
property damage. Tenant shall be obligated to maintain at lease $2,000,000 of
liability insurance coverage, provided that such coverage is available to Tenant
through recognized insurance markets and the cost is not "exorbitant." For the
purposes hereof, "exorbitant" shall mean an increase in premiums in excess of
100% of the prior year's annual premium. If Tenant is unable to obtain
$2,000,000 of liability insurance coverage through recognized insurance markets,
or if the cost of same is "exorbitant" then Tenant may maintain a lesser amount
of coverage, provided, however, that if at any time Tenant is unable to obtain
and maintain at least $1,000,000 in coverage, Landlord may, at its option,
terminate this Lease upon thirty (30) days notice to Tenant. The amount of such
insurance shall not limit Tenant's liability nor relieve Tenant of any
obligation hereunder. The policy shall contain cross-liability endorsements.
Such policy shall contain a provision which prohibits cancellation or
modification of the policy except upon ten (10) days' prior written notice to
Landlord. Such policy shall name Landlord as an additional insured. Tenant shall
deliver a copy of such policy or a certificate of insurance to Landlord prior to
the Commencement Date and prior to the expiration of any such policy during the
Lease Term. If Tenant fails to maintain such policy, Landlord may elect to
obtain and maintain such insurance at Tenant's expense and the cost thereof,
together with a fee equal to 10% of the amount thereof to compensate Landlord
for its time and efforts in obtaining same, shall be paid by Tenant to Landlord
immediately upon demand. Tenant shall, at Tenant's expense, maintain such other
liability insurance as Tenant deems necessary to protect Tenant.
(b) PROPERTY INSURANCE. During the Lease Term, Landlord shall
maintain a policy of insurance covering loss of or damage to the Property in the
amount of the full replacement value thereof. Such policy shall provide
protection against all perils generally included within the classification of
"all risks," including fire and lightning, extended coverage, vandalism,
malicious mischief, and special extended perils, including an Inflation Guard
endorsement, and any other perils (excluding flood and earthquake) which
Landlord reasonably deems necessary. Tenant may maintain such additional
insurance on its fixtures, equipment and other personal property as Tenant deems
necessary to protect its interest. Tenant shall not do or permit to be done
anything which invalidates any such insurance policies.
(c) FORM OF POLICIES. All policies of insurance provided for
herein shall be issued by insurance companies qualified to do business in the
State of California with general policy
6
holder's rating of not less than A and a financial rating of not less than X as
rated in the most current available "Best's Insurance Guide" and shall be
reasonably acceptable to Landlord in all other aspects. Such policies may
contain reasonable deductibles, provided that Tenant shall be responsible for
the payment of any deductible in the event of an insured loss.
(d) PAYMENT OF PREMIUMS. Landlord shall pay the "Base Premiums"
for the insurance policies maintained by Landlord under Section 4.04(b) hereof.
Base Premiums are the actual insurance premiums paid by Landlord for the
required insurance for the Property for the first twelve (12) months of the
Lease Term starting with the Commencement Date. Tenant shall pay the amount, if
any, by which the insurance premiums for all policies maintained by Landlord
under Section 4.04(b) increase over the Base Premiums, whether such increases
result from the nature of Tenant's occupancy, any act or omission of Tenant,
general rate increases, or any other cause. Upon receipt of notice from Landlord
of any increase in insurance premiums over Base Premiums, supported by a copy of
the premium statement or other evidence of the new premiums, Tenant shall pay to
Landlord within fifteen (15) days an amount equal to 1/12 of such increase
multiplied by the number of months between the month that the increase became
effective and the month that such notice is given to Tenant, both months
included. Commencing on the first day of the month after the month in which such
notice is given to Tenant, concurrently with the payment of Base Rent, Tenant
shall pay to Landlord an additional amount equal to 1/12 of the amount of such
increase. Notwithstanding the foregoing, Landlord reserves the right to allocate
any increase over a shorter period than twelve (12) months if the premiums are
actually paid over a shorter period. Such payments shall continue until such
time as Tenant receives notice from Landlord of another increase in premiums, at
which time similar adjustments shall be made. There shall be a final adjustment,
if necessary, upon the expiration of the Lease.
Section 4.05. LATE CHARGES. Tenant's failure to pay Rent promptly
may cause Landlord to incur unanticipated costs. The exact amount of such costs
are impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges and late charges which may
be imposed on Landlord by any mortgage or trust deed encumbering the Property.
Therefore, if Landlord does not receive any Rent payment within ten (10) days
after it becomes due, Tenant shall pay Landlord a late charge equal to five
percent (5%) of the overdue amount. The parties agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of such late payment.
Section 4.06. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed
by Tenant to Landlord which is not paid when due shall bear interest at the rate
of twelve percent (12%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of interest on such amounts shall not excuse or cure any
default by Tenant under this Lease. If the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate shall automatically
be decreased to the maximum legal interest rate permitted by law.
ARTICLE FIVE: USE OF PROPERTY
7
Section 5.01. PERMITTED USES. Tenant may use the Property only as
a secure detention facility under the CDC Contract, or a similar use under any
Federal, State or County program (provided that this Lease is guaranteed by the
applicable governmental authority in the same manner as the State of California
will guarantee this Lease pursuant to Article Fifteen), including all uses
incidental thereto.
Section 5.02. MANNER OF USE. Tenant shall not cause or permit the
Property to be used in any way which constitutes a violation of any law,
ordinance, or governmental regulation or order, or which violates any provisions
of the CDC Contract. Tenant shall obtain and pay for all permits and other
governmental authorizations required for Tenant's occupancy and use of the
Property and shall promptly take all actions necessary to comply with all
applicable statutes, ordinances, rules, regulations, orders and requirements
regulating the use by Tenant of the Property including, but not limited to,
specific requirements of the State of California Department of Corrections.
Section 5.03. INDEMNITY. Tenant shall indemnify Landlord against
and hold Landlord harmless from any and all costs, claims or liability arising
from: (a) Tenant's use of the Property; (b) the conduct of Tenant's business or
anything else done or permitted by Tenant to be done in or about the Property;
(c) any breach or default in the performance of Tenant's obligations under this
Lease; (d) any misrepresentation or breach of warranty by Tenant under this
Lease; and (e) other acts or omissions of Tenant. Tenant shall defend Landlord
against any such cost, claim or liability at Tenant's expense with counsel
reasonably acceptable to Landlord, or at Landlord's election, Tenant shall
reimburse Landlord for any legal fees or costs incurred by Landlord in
connection with any such claim. As a material part of the consideration to
Landlord, Tenant hereby assumes all risk of damage to property or injury to
persons in or about the Property arising from any cause, and Tenant hereby
waives all claims in respect thereof against Landlord, except for any claim
arising out of Landlord's negligence or willful misconduct.
Section 5.04. LANDLORD'S ACCESS. Landlord or its agents may enter
the Property at all reasonable times to show the Property to potential buyers,
lenders, tenants or other parties, or for any other purpose Landlord deems
necessary. Landlord shall give Tenant at least three (3) days prior notice of
such entry, except in the case of an emergency. Landlord may not place any "For
Sale" or "For Lease" signs on the Property during the Lease Term.
Section 5.05. QUIET POSSESSION. If Tenant pays the Rent and
complies with all other terms of this Lease, Tenant may occupy and enjoy the
Property for the full Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND
ALTERATIONS
Section 6.01. EXISTING CONDITIONS. Tenant acknowledges that it
has inspected the Property and, subject to Section 6.03, Tenant accepts the
Property in its condition as of the execution
8
of the Lease, subject to all recorded matters, laws, ordinances, zoning
restrictions, and governmental regulations and orders. Tenant acknowledges that
Landlord has not made any representation as to the condition of the Property or
the suitability of the Property for Tenant's intended use.
Section 6.02. EXEMPTION OF LANDLORD FROM LIABILITY. Landlord
shall not be liable for any damage or injury to the person, business (or any
loss of income therefrom), goods, wares, merchandise or other property of
Tenant, Tenant's employees, invitees, customers or any other person in or about
the Property, whether such damage or injury is caused by or results from: (a)
fire, steam, electricity, water, gas or rain; (b) the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures or any other cause, or (c) conditions
arising in or about the Property or from other sources or places. Landlord shall
not be liable for any such damage or injury even though the cause of or the
means of repairing such damage or injury are not accessible to Tenant. The
provisions of this Section 6.02 shall not, however, exempt Landlord from
liability for Landlord's negligence or willful misconduct.
Section 6.03. LANDLORD'S OBLIGATIONS PRIOR TO COMMENCEMENT DATE.
In lieu of making any repairs other than provided herein, Landlord shall pay to
Tenant Ten Thousand Dollars ($10,000) upon execution and Landlord agrees to
place the heating, ventilating, air conditioning systems and thirty-six (36)
stoves in operating condition and repair. Tenant shall have until September 30,
1987 to advise Landlord of any problems in the operation of said systems and
until said date all such problems shall be cured at Landlord's expense.
Thereafter all future repairs or replacements during the Lease Term shall be at
Tenant's expense. Landlord further agrees that upon commencement of the Lease
Term Landlord shall pay to Tenant the sum of Thirty-Thousand Dollars ($30,000);
the parties having agreed that such payment shall be made in lieu of Landlord
placing the plumbing and any fixtures, including but not limited to hot water
heaters, dishwashers and in-sink erradicators, in operating condition and
repair. Other than provided herein, Landlord shall have no other obligations
prior to the Lease Commencement.
Section 6.04. LANDLORD'S OBLIGATIONS AFTER COMMENCEMENT DATE.
(a) During the term of this Lease and any extensions, Landlord
shall, at Landlord's expense, maintain the roofs on the Property in water-tight
condition and repair. As provided above, through September 30, 1987 Landlord
shall, at Landlord's expense, maintain the heating, ventilating and air
conditioning systems in operating condition and repair. Subject to the preceding
and the provisions of Article Seven (Damage or Destruction) and Article Eight
(Condemnation), and except for damage caused by any act or omission of Landlord,
Tenant shall, at Tenant's expense, maintain the foundations and structural
portions of the improvements on the Property and the heating, electrical,
plumbing and sewer systems therein in good order, condition and repair.
(b) All of Landlord's obligations to maintain and repair shall be
accomplished at Landlord's sole expense. If Landlord fails to maintain and
repair the Property as required by Section 6.04 of this Lease, Tenant may, on
thirty (30) days prior notice (except that no notice shall be
9
required in case of emergency), perform such maintenance or repair on behalf of
Landlord. In such case, Landlord shall reimburse Tenant for all costs incurred
in performing such maintenance or repair together with a fee equal to ten
percent (10%) of the amount thereof to compensate Tenant for its time and
efforts in performing such maintenance or repair, immediately upon demand, and
the failure to so reimburse Tenant shall entitle Tenant to withhold such amounts
from future rent payments.
Section 6. 05. TENANT'S OBLIGATIONS.
(a) Except as provided in Section 6.04 and subject to the
provisions of Article Seven (Damage or Destruction) and Article Eight
(Condemnation), Tenant shall, at all times, keep the Property (including
non-structural, interior, exterior, and landscaped areas, systems and equipment)
in good order, condition and repair. If any portion of the Property or any
system or equipment in the Property which Tenant is obligated to repair cannot
be fully repaired, Tenant shall promptly replace such portion of or system or
equipment in the Property, regardless of whether the benefit of such replacement
extends beyond the Lease Term. In addition, Tenant shall, at Tenant's expense,
repair any damage to the roofs, foundations or structural portions of walls
caused by Tenant's or State's participants' acts or omissions.
(b) All of Tenant's obligations to maintain and repair shall be
accomplished at Tenant's sole expense. If Tenant fails to maintain and repair
the Property as required by this Section 6.05, Landlord may, on thirty (30) days
prior notice (except that no notice shall be required in case of emergency),
enter the Property and perform such maintenance or repair on behalf of Tenant.
In such case, Tenant shall reimburse Landlord for all costs incurred In
performing such maintenance or repair together with a fee equal to 10% of the
amount thereof to compensate Landlord for its time and efforts in performing
such maintenance or repair, immediately upon demand and the failure to so
reimburse Landlord will be considered a material default under this Lease.
Section 6.06. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS.
(a) Tenant shall not make any alterations, additions, or
improvements to the Property without Landlord's prior written consent, except
for non-structural alterations. Landlord's consent will not be unreasonably
withheld or delayed. Landlord may require Tenant to provide lien and completion
bonds in form and amount satisfactory to Landlord. Tenant shall promptly remove
any alterations, additions, or improvements constructed in violation of this
Section upon Landlord's written request. All alterations, additions, and
improvements will be accomplished in a good and workmanlike manner, in
conformity with all applicable laws and regulations.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property at Tenant's instance or request. Tenant shall give
Landlord at least ten (10) days prior written notice of the commencement of any
work on the Property. Landlord may elect to record and post notices of
non-responsibility on the Property.
10
(c) Landlord hereby preapproves of the construction by Tenant of
(1) perimeter fencing, (2) a prefabricated building for a kitchen cafeteria
behind the recreation center, and (3) compound lighting.
Section 6. 07. CONDITION UPON TERMINATION. Upon the termination
of the Lease, Tenant shall surrender the Property to Landlord in the same
condition as received except for ordinary wear and tear which Tenant was not
otherwise obligated to remedy under any provision of this Lease. However, Tenant
shall not be obligated to repair any damage which Landlord is required to repair
under Article Seven (Damage or Destruction). In addition, Landlord may require
Tenant to remove any alterations, additions or improvements (whether or not made
with Landlord's consent) upon the termination of the Lease and to restore the
Property to its prior condition, all at Tenant's expense. All alterations,
additions and improvements which Landlord has not required Tenant to remove
shall become Landlord's property and shall be surrendered to Landlord upon the
termination of the Lease, except that Tenant may remove any of Tenant's
machinery or equipment which can be removed without material damage to the
Property and Tenant may remove the prefabricated kitchen cafeteria or any other
prefabricated housing units that Tenant installs, any perimeter fencing, and any
security devices, including lighting and related electrical appurtenances.
Tenant shall repair, at Tenant's expense, any damage to the Property caused by
the removal of any such machinery, equipment or other property.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01. PARTIAL DAMAGE TO PROPERTY. Tenant shall notify
Landlord in writing immediately upon the occurrence of any damage to the
Property. If the Property is only partially damaged and if the proceeds received
by Landlord from the insurance policies described in Section 4.04(b) are
sufficient to pay for the necessary repairs, this Lease shall remain in effect
and Landlord shall repair the damage as soon as reasonably possible. Landlord
may elect to repair any damage to Tenant's fixtures, equipment, or improvements.
If the insurance proceeds received by Landlord are not sufficient to pay the
entire cost of repair, or if the damage was due to a cause not covered by the
insurance policies which Landlord maintains under Section 4.04(b), Landlord may
elect either to (a) repair the damage as soon as reasonably possible in which
case this Lease shall remain in full force and effect, or (b) terminate this
Lease as of the date the damage occurred. Landlord shall notify Tenant within
thirty (30) days after receipt of notice of the occurrence of the damage,
whether Landlord elects to repair the damage or terminate the Lease. If Landlord
elects to repair the damage and if the damage was due to an act or omission of
Tenant, Tenant shall pay Landlord upon demand the difference between the actual
cost of repair and any insurance proceeds received by Landlord. If Landlord
elects to terminate the Lease, Tenant may elect to continue this Lease in full
force and effect, in which case Tenant shall repair any damage to the Property.
Tenant shall pay the cost of such repairs, except that, upon satisfactory
completion of such repairs, Landlord shall deliver to Tenant any insurance
proceeds received by Landlord for the damage repaired by Tenant. Tenant shall
give Landlord written notice of such election within ten (10) days after
receiving Landlord's termination notice. If the damage to the Property occurs
during the last six (6) months of the Lease Term and prior to the exercise of
the option to extend by Tenant, Landlord may
11
elect to terminate this Lease as of' the date the damage occurred regardless of
the sufficiency of any insurance proceeds. In such event, Landlord shall not be
obligated to repair or restore the Property and Tenant shall have no right to
continue or extend this Lease. Landlord shall notify Tenant of its election
within thirty (30) days after receipt of notice of the occurrence of the damage.
Section 7.02. TOTAL OR SUBSTANTIAL DESTRUCTION. If the Property
is totally or substantially destroyed by any cause whatsoever, this Lease shall
terminate as of the date the destruction occurred regardless of whether Landlord
receives any insurance proceeds. However, if the Property can be rebuilt within
one (1) year after the date of destruction, Landlord may elect to rebuild the
Property at Landlord's own expense, in which case, this Lease shall remain in
full force and effect. Landlord shall notify Tenant of such election within
thirty (30) days after the occurrence of total or substantial destruction. If
the destruction was caused by an act or omission of Tenant, Tenant shall pay
Landlord the difference between the actual cost of rebuilding and any insurance
proceeds received by Landlord.
Section 7.03. TEMPORARY REDUCTION OF RENT. If the Property is
destroyed or damaged and Landlord or Tenant repairs or restores the Property
pursuant to the provisions of this Article Seven, the Base Rent and other
charges payable during the period of such damage, repair and/or restoration
shall be reduced according to the degree, if any, to which Tenant's use of the
Property is impaired. Except for such possible reduction in Base Rent, Tenant
shall not be entitled to any compensation, reduction, or reimbursement from
Landlord as a result of any damage, destruction, repair, or restoration of or to
the Property.
Section 7. 04. WAIVER. Tenant waives the protection of any
statute, code or judicial decision which grants a tenant the right to terminate
a lease in the event of the substantial destruction of the leased property.
Tenant agrees that the provisions of Section 7.02 above shall govern the rights
and obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
Section 7.05. CDC CONTRACT REQUIREMENTS. Notwithstanding anything
in this Article Seven to the contrary, in the event of any damage or destruction
to the Property which causes the State of California to terminate the CDC
Contract, then this Lease shall terminate as of the date of the termination of
the CDC Contract.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty-five percent (25%) of the Property is taken, either Landlord
or Tenant may terminate this Lease as of the date the condemning authority takes
title or possession, by delivering written notice to the other within ten (10)
days after receipt of written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning
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authority takes possession). If neither Landlord nor Tenant terminates this
Lease, this Lease shall remain in effect as to the portion of the Property not
taken, except that the Base Rent shall be reduced equitably depending upon the
degree, if any, to which Tenant's use of the Property is impaired. Any
Condemnation award or payment shall be distributed in the following order: (a)
first, to any mortgagee or beneficiary under a deed of trust encumbering the
Property, the amount of its interest in the Property; and (b) second, to
Landlord, the remainder of such award. Provided, however, that Tenant shall be
entitled to receive such portion of the award to Landlord specifically allocated
to Tenant by the condemning authority for the value of its lost leasehold
interest and for loss of or damage to Tenant's trade fixtures or removable
personal property, determined in accordance with the California Eminent Domain
Law. If this Lease is not terminated, Landlord shall repair any damage to the
Property caused by the Condemnation, except that Landlord shall not be obligated
to repair any damage for which Tenant has been reimbursed by the condemning
authority. If the severance damages received by Landlord are not sufficient to
pay for such repair, Landlord shall have the right to either terminate this
Lease or make such repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. LANDLORD'S CONSENT REQUIRED. No portion of the
Property or of Tenant's interest in this Lease may be acquired by any other
person or entity, whether by assignment, mortgage, sublease, transfer, operation
of law, or act of Tenant, without Landlord's prior written consent. Landlord
shall grant or withhold its consent as provided in Section 9.03 below. Any
attempted transfer without consent shall be void and shall constitute a
non-curable breach of this Lease. Any sublease of residences within the Property
to Tenant's employees or agents who work on the Property shall not be considered
a sublease for the purposes of this Section.
Notwithstanding the preceding, any public or private sale,
transfer, or offering of the stock of Tenant. whether or not a controlling
interest is transferred, shall not be considered an event requiring Landlord's
consent.
Section 9.02. NO RELEASE OF TENANT. No transfer of Tenant's
interest under this Lease, unless made with Landlord's prior written consent as
provided herein, shall release Tenant or change Tenant's primary liability to
pay Rent and to perform all other obligations of Tenant under this Lease.
Landlord's acceptance of Rent from any other person is not a waiver of any
provision of this Article Nine. Consent to one transfer is not a consent to any
subsequent transfer.
Section 9.03. LANDLORD'S ELECTION. Tenant's request for consent
to any transfer described in Section 9.01 above shall be accompanied by a
written statement setting forth the details of the proposed transfer, including
the name, business and financial condition of the prospective transferee,
financial details of the proposed transfer (e.g. , the term of and Rent and
security deposit payable under any assignment or sublease), and any other
information Landlord deems relevant. Landlord shall have the right (a) to
withhold consent, if reasonable; (b) to grant consent; or (c) if the transfer is
a sublease of the Property or an assignment of this Lease, to terminate this
Lease as of the effective date of such sublease or assignment, in which case
Landlord may elect to enter into a direct
13
lease with the proposed assignee or subtenant.
Section 9.04. NO MERGER. No merger shall result from Tenant's
sublease of the Property under this Article Nine, Tenant's surrender of this
Lease or the termination of this Lease in
any other manner. In any such event, Landlord may terminate any or all
subtenancies or succeed to the interest of Tenant as sublandlord thereunder.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.1. COVENANTS AND CONDITIONS. Tenant's performance of
each of Tenant's obligations under this Lease is a condition as well as a
covenant. Tenant's right to continue in possession of the Property is
conditioned upon such performance. Time is of the essence in the performance of
all covenants and conditions.
Section 10.02. DEFAULTS. Tenant shall be in material default
under this Lease:
(a) If Tenant abandons the Property;
(b) If Tenant fails to pay Rent as and when due (nothing herein
shall be deemed to be a waiver by Tenant of the right to receive a 3-day notice
of non-payment of rent under California Code of Civil Procedure ss.1161 or any
successor statute);
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30) day period and thereafter diligently
pursues its completion. However, Landlord shall not be required to give such
notice of Tenant's failure to perform constitutes a non-curable breach of this
Lease. The notice required by this Section is intended to satisfy any and all
notice requirements imposed by law on Landlord and is not in addition to any
such requirement.
(d) (i) If Tenant makes a general assignment or general
arrangements for the benefit of creditors; (ii) if a petition for adjudication
of bankruptcy or for reorganization or rearrangement is filed by or against
Tenant and is not dismissed within thirty (30) days; (iii) if a trustee or
receiver is appointed to take possession of substantially all of Tenant's assets
located at the Property or of Tenant's interest in this Lease and possession is
not restored to Tenant within thirty (30) days; or (iv) if substantially all of
Tenant's assets located at the Property or of Tenant's interest in this Lease is
subjected to attachment, execution or other judicial seizure which is not
discharged within thirty (30) days. If a court of competent jurisdiction
determines that any of the acts described in this Subparagraph (d) is not a
default under this Lease, and a trustee is appointed to take possession (or if
Tenant remains a debtor in possession) and such trustee or Tenant transfers
14
Tenant's interest hereunder, then Landlord shall receive, as Additional Rent,
the difference between the Rent (or any other consideration) paid in connection
with such assignment or sublease and the Rent payable by Tenant hereunder.
(e) If Tenant ceases operation of the Property as permitted under
Article 5.01 above.
Section 10.03. REMEDIES. On the occurrence of any material
default by Tenant, Landlord may, at any time thereafter, with or without notice
or demand and without limiting Landlord in the exercise of any right or remedy
which Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which had
been earned at the time of the termination; (ii) the worth at the time of the
award of the amount by which the unpaid Base Rent, Additional Rent and other
charges which would have been earned after termination until the time of the
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; (iii) the worth at the time of the award of the amount by
which the unpaid Base Rent, Additional Rent and other charges which would have
been paid for the balance of the term after the time of award exceeds the amount
of such rental loss that Tenant proves could have been reasonably avoided; and
(iv) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under the
Lease or which in the ordinary course of things would be likely to result
therefrom, including, but not limited to, any costs or expenses incurred by
Landlord in maintaining or preserving the Property after such default, the cost
of recovering possession of the Property, expenses of reletting, including
necessary renovation or alteration of the Property, Landlord's reasonable
attorney's fees incurred in connection therewith, and any real estate commission
paid or payable. As used in subparts (i) and (iii) above, the "worth at the time
of the award" is computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award, plus 1%. If
Tenant shall have abandoned the Property, Landlord shall have the option of (i)
retaking possession of the Property and recovering from Tenant the amount
specified in this Section 10.03(a), or (ii) proceeding under Section 10.03(b);
(b) Maintain Tenant's right to possession, in which case this
Lease shall continue in effect whether or not Tenant shall have abandoned the
Property. In such event, Landlord shall be entitled to enforce all of Landlord's
rights and remedies under this Lease, including the right to recover Rent as it
becomes due hereunder;
(c) Pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the State of California.
Section 10.4. CUMULATIVE REMEDIES. Landlord's exercise of any
right or remedy shall
15
not prevent it from exercising any other right or remedy.
ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. SUBORDINATION. Landlord shall have the right to
subordinate this Lease to any deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. However, Tenant's right to quiet possession of the Property during
the Lease Term shall not be disturbed if Tenant pays the Rent and performs all
of Tenant's obligations under this Lease and is not otherwise in default. If any
beneficiary or mortgagee elects to have this Lease prior to the lien of its deed
of trust or mortgage and gives written notice thereof to Tenant, this Lease
shall be deemed prior to such deed of trust or mortgage, whether this Lease is
dated prior or subsequent to the date of said deed of trust or mortgage or the
date of recording thereof.
Section 11. 02. ATTORNMENT. If Landlord's interest in the
Property is acquired by any beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11. 03. SIGNING OF DOCUMENTS. Tenant shall sign and
deliver any instrument or documents necessary or appropriate to evidence any
such attornment or subordination or agreement to do so. If Tenant fails to do so
within fifteen (15) days after written request, Tenant hereby makes, constitutes
and irrevocably appoints Landlord, or any transferee or successor of Landlord,
the attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.04. ESTOPPEL CERTIFICATES.
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (i) that
none of the terms or provisions of this Lease have been changed (or if they have
been changed, stating how they have been changed); (ii) that this Lease has not
been cancelled or terminated; (iii) that the last date of payment of the Base
Rent and other charges and the time period covered by such payment; and (iv)
that Landlord is not in default under this Lease (or, if Landlord is claimed to
be in default, stating why). Tenant shall deliver such statement to Landlord
within fifteen (15) days after Landlord's request. Any such statement by Tenant
may be given by Landlord to any prospective purchaser or encumbrancer of the
Property. Such purchaser or encumbrancer may rely conclusively upon such
statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within
such fifteen (15) day period, Landlord, and any prospective purchaser or
encumbrancer, may conclusively presume and rely upon the following facts: (i)
that the terms and provisions of this Lease have not been
16
changed except as otherwise represented by Landlord; (ii) that this Lease has
not been cancelled or terminated except as otherwise represented by Landlord;
(iii) that not more than one month's Base Rent or other charges have been paid
in advance; and (iv) that Landlord is not in default under the Lease. In such
event, Tenant shall be estopped from denying the truth of such facts.
Section 11.05. TENANT'S FINANCIAL CONDITION. Within thirty (30)
days after written request from Landlord, Tenant shall deliver to any lender or
potential purchaser designated by Landlord such financial statements as may be
reasonably required by such lender or potential purchaser to facilitate the
financing or refinancing or sale of the Property. All financial statements shall
be confidential and shall be used only for the purposes set forth herein.
ARTICLE TWELVE: LEGAL COSTS
Section 12.01. LEGAL PROCEEDINGS. If any action for breach of or
to enforce the provisions of this Lease is commenced by Landlord or Tenant, the
court in such action shall award to the party in whose favor a judgment is
entered, a reasonable sum as attorneys' fees and costs. Such attorneys' fees and
coats shall be paid by the losing party in such action. Tenant shall also
indemnify Landlord against and hold Landlord harmless from all costs, expenses,
demands and liability incurred by Landlord if Landlord becomes or is made a
party to any claim or action (a) instituted by Tenant, or by any third party
against Tenant, or by or against any person holding any interest under or using
the Property by license of or agreement with Tenant; (b) for foreclosure of any
lien for labor or material furnished to or for Tenant or such other person; (c)
otherwise arising out of or resulting from any act or transaction of Tenant or
such other person; or (d) necessary to protect Landlord's interest under this
Lease in a bankruptcy proceeding, or other proceeding under the Bankruptcy Act.
Tenant shall defend Landlord against any such claim or action at Tenant's
expense with counsel reasonably acceptable to Landlord, or, at Landlord's
election, Tenant shall reimburse Landlord for any legal fees or costs incurred
by Landlord in any such claim or action.
Section 12.02. LANDLORD'S CONSENT. Tenant shall pay Landlord's
reasonable attorneys' fees incurred in connection with Tenant's request for
Landlord's consent under Article Nine (Assignment and Subletting), or in
connection with any other act which Tenant proposes to do and which requires
Landlord's consent, not to exceed $500.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. WAIVER OF SUBROGATION. Landlord and Tenant each
hereby waive any and all rights of recovery against the other, or against the
officers, employees, agents or representatives of the other, for loss of or
damage to its property or the property of others under its control, if such loss
or damage is covered by any insurance policy in force (whether or not described
in this Lease) at the time of such loss or damage. Upon obtaining the policies
of insurance described herein, Landlord and Tenant shall give notice to the
insurance carrier or carriers of the foregoing mutual waiver of subrogation.
17
Section 13.02. LANDLORD'S LIABILITY; CERTAIN DUTIES.
(a) As used in this Lease, the term "Landlord" means only the
current owner or owners of the fee title to the Property at the time in
question. Landlord is obligated to perform the obligations of Landlord under
this Lease only during the time such Landlord owns such interest or title. Any
Landlord who transfers its title or interest is relieved of all liability with
respect to the obligations of Landlord under this Lease to be performed on or
after the date of transfer.
(b) Tenant shall give written notice of any failure by Landlord
to perform any of its obligations under this Lease to Landlord and to any
mortgagee or beneficiary under any deed of trust encumbering the Property whose
name and address have been furnished to Tenant in writing. Landlord shall not be
in default under this Lease unless Landlord (or such mortgagee or beneficiary)
fails to cure such non-performance within thirty (30) days after receipt of
Tenant's notice. However, if such non-performance reasonably requires more then
thirty (30) days to cure, Landlord shall not be in default if such cure is
commenced within such thirty (30) day period and thereafter diligently pursued
to completion.
Section 13. 03. SEVERABILITY. A determination by a court of
competent jurisdiction that any provision of this Lease or any part thereof is
illegal or unenforceable shall not cancel or invalidate the remainder of such
provision or this Lease, which shall remain in full force and effect.
Section 13. 04. INTERPRETATION. The captions of the Articles or
Sections of this Lease are to assist the parties in reading this Lease and are
not a part of the terms or provisions of this Lease. Whenever required by the
context of this Lease, the singular shall include the plural and the plural
shall include the singular. The masculine, feminine and neuter genders shall
each include the other. In any provision relating to the conduct, acts or
omissions of Tenant, the term "Tenant" shall include Tenant's officers,
directors, agents, employees, contractors, invitees, successors or others using
the Property with Tenant's expressed or implied permission.
Section 13. 05. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS.
This Lease is the only agreement between the parties pertaining to the lease of
the Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13. 06. NOTICES. All notices required or permitted under
this Lease shall be in writing and shall be personally delivered or sent by
certified mail, return receipt requested, postage prepaid. Notices to Tenant
shall be delivered to the address specified below Tenant's signature hereon,
except that upon Tenant's taking possession of the Property, the Property shall
be Tenant's address for notice purposes. Notices to Landlord shall be delivered
to the address specified below Landlord's signature hereon. A copy of any notice
to Landlord shall be sent to Baumgarten & Greene, a Professional Law
Corporation, 2951 - 28th Street, Suite 3000, Santa Monica, California 90405. All
notices shall be effective upon personal delivery or 48 hours after mailing.
Either party may change its notice address upon written notice to the other
party.
18
Section 13. 07. WAIVERS. All waivers must be in writing and
signed by the waiving party. Landlord's failure to enforce any provision of this
Lease or its acceptance of Rent shall not be a waiver and shall not prevent
Landlord from enforcing that provision or any other provision of this Lease in
the future. No statement on a payment check from Tenant or in a letter
accompanying a payment check shall be binding on Landlord. Landlord may, with or
without notice to Tenant, negotiate such check without being bound to the
conditions of such statement.
Section 13.08. RECORDATION. Tenant may record a "short form" or
memorandum of this Lease in a form approved by Landlord.
Section 13.09. BINDING EFFECT; CHOICE OF LAW. This Lease binds
any party who legally acquires any rights or interest in this Lease from
Landlord or Tenant. However, Landlord shall have no obligation to Tenant's
successor unless the rights or interests of Tenant's successor are acquired in
accordance with the terms of this Lease. The laws of the state of California
shall govern this Lease.
Section 13.10. CORPORATE AUTHORITY. If Tenant is a corporation,
each person signing this Lease on behalf of Tenant represents and warrants that
he has full authority to do so and that this Lease binds the corporation. Within
thirty (30) days after this Lease is signed, Tenant shall deliver to Landlord a
certified copy of a resolution of Tenant's Board of Directors authorizing the
execution of this Lease or other evidence of such authority reasonably
acceptable to Landlord.
Section 13.11. FORCE MAJEURE. Except as otherwise expressly
provided herein, if Landlord cannot perform any of its obligations due to events
beyond Landlord's control, the time provided for performing such obligations
shall be extended by a period of time equal to the duration of such events.
Events beyond Landlord's control include, but are not limited to, acts of God,
war, civil commotion, labor disputes, strikes, fire, flood or other casualty,
shortages of labor or material, government regulation or restriction and weather
conditions.
Section 13.12. RELATIONSHIP OF PARTIES. Nothing contained herein
shall be deemed or construed by the parties hereto, or by any third party, as
creating the relationship of principal and agent or of a partnership, joint
venture or other similar relationship, it being understood and agreed that the
only relationship between the parties hereto created by this Lease shall be that
of landlord and tenant.
ARTICLE FOURTEEN: BROKERS
Section 14.01. NO BROKER. Each party represents that it has not
dealt with any agents, brokers, finders or any other parties who are or may be
entitled to any commission or fee with respect to this Lease. Each party agrees
to and does hereby indemnify the other from any liability resulting from a
breach of this representation.
ARTICLE FIFTEEN: CONTRACT WITH STATE OF CALIFORNIA
19
Section 15.01. LETTER FROM STATE. Tenant shall use its best
efforts to get an appropriate official of the State to execute a letter to
Landlord in substantially the form which is attached hereto as Attachment "B."
Section 15.02. DISCLOSURE OF STATE CONTRACT. In connection with
Landlord's intention to obtain a loan secured by the Property, Landlord has
requested that Tenant provide Landlord with a copy of Tenant's contract with the
State of California regarding this facility, including its exhibits. Tenant has
already provided Landlord with a copy of the contract, and will provide Landlord
with a copy of the exhibits upon execution of this Lease. Landlord agrees and
warrants that this information is confidential and will be used only by
Landlord's lender for purposes of said loan. Landlord will not allow, directly
or indirectly, the contract or its exhibits or the information contained therein
to be disclosed to anyone other than Landlord's lender for the purposes of said
loan, and agrees to indemnify and defend Tenant against any liability, claims,
demands, damages, or costs resulting from the disclosure of the contract or its
exhibits or the information contained therein. This information is provided as
an accommodation to Landlord, and other than as provided in this Lease Tenant
assumes no additional obligation or liability to Landlord or Landlord's lender
by providing them with the contract and exhibits.
Section 15.03. RIGHTS OF STATE. The State of California shall
have those rights described in Section 23. b-e of ECI's contract with the State,
which rights are reproduced verbatim below:
"23. a. . . . .
b. Upon termination of the contract with just cause, the
State will have the option to: (1) lease or sublease the facility
to continue the program, and/or (2) extend the lease for an
additional five years beyond the original contract. The lease
costs for these two options will not exceed the lease amount paid
for by the contractor in the lease agreement.
c. The State can exercise the options in Paragraph 23b
only under the condition where the contract has been terminated
due to just cause, or otherwise upon written approval by the
contractor.
d. If the Contractor ceases operation of the facility, the
State will have first priority to exercise the same options
outlined in Paragraph 23b.
e. If the State does not implement either of the options
outlined in 23b, the Contractor and facility lessor shall make
all reasonable efforts to terminate, assign, finalize settlement
of the lease, or otherwise reduce the facility lease costs. If a
good faith effort on the part of the Contractor and the facility
lessor has been unsuccessful to accomplish these efforts, but has
found a replacement lessee to continue the program with a lease
payment of less than the contracted monthly lease
20
costs, the State shall reimburse Contractor or lessor the
difference between the contracted monthly lease costs, and the
replacement monthly lease cost amount for a period not to exceed
five years."
ARTICLE SIXTEEN: PERSONAL PROPERTY
Section 16.01. REMOVAL OF LANDLORD'S PERSONAL PROPERTY. Except
for the personal property set forth in Attachment "A," which is included under
this Lease, and the personal property which Tenant purchases from Landlord
pursuant to Section 16.02 hereof, Landlord shall remove all of its personal
property from the Property within one (1) month after execution of Lease.
Section 16.02. PURCHASE OF PERSONAL PROPERTY BY TENANT. Tenant
and Landlord shall deal directly with each other as to the purchase of any
personal property located on the Property not included in Attachment "A."
ARTICLE SEVENTEEN: RIGHT OF FIRST REFUSAL
Section 17.01. MANNER OF EXERCISE. If at any time during the
Lease Term, Landlord receives a bona fide offer from a third party for the
purchase of the Property, Landlord shall give notice to Tenant of the purchase
price and other material terms of such offer. Tenant shall have thirty (30) days
after receipt of such notice within which to enter into a written agreement with
Landlord for the purchase of the Property for the same purchase price and on the
same terms and conditions as set forth in such offer (except that the closing
date shall be not sooner than thirty (30) days after the date that the agreement
between Tenant and Landlord is executed). If Tenant fails to enter into such an
agreement with Landlord within said 30-day period, then Landlord shall have the
right to sell the Property, but only to the offeror and on substantially the
same terms and conditions set forth in the notice. If Landlord does not sell to
said offeror, Landlord must give Tenant notice of any subsequent offer to
purchase as provided herein. If Tenant enters into such an agreement but
defaults in performance thereunder, then all rights of Tenant to purchase the
Property shall terminate, and Landlord shall have the unconditional right to
sell the Property to the offeror, or to any other third party on any terms and
conditions acceptable to Landlord, and no notice of any subsequent offers to
purchase must be given to Tenant. This right of first refusal shall not apply to
(a) sales or transfers among entities or persons related to Landlord, including
but not limited to the partners of Landlord, (b) any transfer or disposition by
gift, devise, testamentary transfer or intestate succession, or (c) the transfer
to a trust for the benefit of Landlord (or any of Landlord's partners) or their
heirs.
21
IN WITNESS WHEREOF, the parties have signed this Lease at the
place and on the dates specified adjacent to their signatures below.
Signed on July 30 1987, at Santa Monica, California.
BAKER HOUSING COMPANY,
A California General Partnership
By: /s/ SKIPPER BAUMGARTEN
------------------
Skipper Baumgarten,
A General Partner
Address:
c/o The Baumgarten Companies
2951 28th Street, Suite 3000
Santa Monica, California 90405
"LANDLORD"
Signed on July 30, 1987, at Santa Monica, California.
ECLECTIC COMMUNICATIONS, INC.,
A California Corporation
By: /s/ ARTHUR MCDONALD
------------------
Arthur McDonald,
President
Address:
1823 Knoll Street
Suite 8
Ventura, California 93003
"TENANT"
22
EXHIBIT 10.18
LEASE AGREEMENT
THIS LEASE AGREEMENT is made between Sun Belt Properties, (a
California Limited Partnership), herein called "Landlord," and ECLECTIC
COMMUNICATIONS, INC., a California corporation, herein called "Tenant."
R E C I T A L S
1. Landlord presently has an option to purchase, and will own
prior to commencement of the Lease term approximately five (5) acres of real
property located in the City of Live Oak, California, more particularly
described on Exhibit "A" attached hereto and by this reference incorporated
herein. Said real property, and all buildings, improvements, and fixtures
thereon, are herein called the "Leased property."
2. Landlord intends to construct a 100 bed detention facility as
specified in Exhibit "B" attached hereto and by this reference incorporated
herein.
3. Tenant wishes to lease the Leased property for use as a
"return to custody" facility under contract with the California Department of
Corrections, and for other uses, upon the terms and conditions contained in this
Agreement.
Upon the terms and conditions contained herein, the parties agree
as follows:
1. AGREEMENT TO LEASE. Landlord hereby leases to Tenant, and
Tenant hereby leases from Landlord, the Leased property.
1
2. RENT. The rent during the term of this Lease, and any renewal
period, shall be Sixteen Thousand, Five Hundred Dollars ($16,500.00) per month,
payable in advance on the first business day of each month at such location as
Landlord may from time to time designate in writing.
The rent for any partial month shall be prorated.
Landlord and Tenant hereby acknowledge and agree that the Monthly
Rent specified above will be increased as described hereinbelow and that
Landlord shall be responsible for calculating such increases pursuant to the
formula described hereinbelow and advising Tenant of such increases. The Monthly
Rent as set forth hereinabove shall be increased for each year of the Term of
this Lease, following the first year ("Subsequent Year") if the Consumer Price
Index for All Urban Consumers for the item "Rent, Residential" within the major
category "Housing," for the consolidated metropolitan statistical areas of "Los
Angeles-Anaheim-Riverside" and "San Francisco-Oakland-San Jose," as published by
the United States Department of Labor, Bureau of Labor Statistics (hereinafter
referred to as the "Bureau") and as used in the methodology of the California
Department of Finance to produce a population-weighted index for the State of
California ("Index"), for the "Comparison Month" (described below) increases
over the Index for the calendar month ("Base Month") which is four months prior
to the month in which the Term of this Lease commences. The Base Month Index
shall be compared with the Index for the same calendar month for each Subsequent
Year ("Comparison Month"). If the Index for any Comparison Month is higher than
the Base Month Index, then the Monthly Rent for the Subsequent Year following
the Comparison Month shall be increased with the first month of such Subsequent
Year by a percentage, which percentage shall be calculated by dividing the Base
Month Index into that number which
2
represents the difference, if any, when subtracting the Base Month Index from
the Index for any Comparison Month.
3. TERM. The initial term of this Lease shall be for ten (10)
years. Tenant shall have the option to renew this Lease two times for additional
periods of five (5) years each. Thus, the term of this Lease may be for ten (10)
years, fifteen (15) years, or twenty (20) years, depending upon whether Tenant
exercises its options to renew. Tenant shall exercise each of said options in
writing no later than ninety (90) days before the expiration of the preceding
term.
The initial term of this Lease shall commence when Landlord's
construction is complete or sufficiently complete that it is acceptable for
use/occupancy by the Tenant and the State of California. Landlord shall give
Tenant two (2) weeks prior written notice of the date that the leased property
will be ready for occupancy.
4. CONTINGENCIES. This Lease is contingent upon review and
approval by representatives of the State of California Department of Corrections
which review has been conducted and approved. Lease is also contingent upon
Landlord commencing work within three (3) months from signature date and
completing work within twelve (12) months.
This Lease is also contingent upon Landlord obtaining a
conditional use permit or other appropriate permit from the appropriate
authorities allowing Tenant's use of the leased property as a return to custody
facility under contract with the California Department of Corrections. If, for
any reason, Landlord does not obtain said permit, or if said permit is cancelled
or revoked prior to commencement of the lease term, Tenant may, in its sole
discretion, terminate this Lease by giving Landlord written notice thereof.
3
In the event of termination as provided in this section, as of
the termination date the parties shall be under no further obligation or
liability with respect to each other by reason of this Lease, including the
obligation to pay rent, except that the parties shall be liable to each other
for the breach of any term of this Lease occurring prior to the date of
termination.
Notwithstanding the preceding, if, during the initial ten (10)
year lease term, Tenant terminates this Lease because its contract with the
California Department of Corrections is cancelled or not renewed or because
Tenant is unable to use the leased property as a return to custody facility
under contract with the California Department of Corrections because of changes
in federal, state, local, or other laws and regulations, Landlord shall
nevertheless be entitled to rent for the remainder of the initial ten (10) year
lease term.
5. USE. Tenant may use the leased property for operating a return
to custody facility under contract with the California Department of
Corrections, and all purposes relating thereto, and for such other uses as may
be permitted by law.
5(a). RIGHTS OF THE STATE OF CALIFORNIA. In the event that the
State terminates their contract with Tenant, the following provisions shall
apply if Tenant does not exercise its option to continue this Agreement without
the State's participation.
The State shall continue the Lease/use payments either for the
remainder of the initial Lease period (up to 120 months from the commencement of
the Lease) or until that date when Landlord begins to obtain facility use
payments from a replacement Lessee approved by the State. The Lease/use costs
will not exceed the Lease amount paid by Tenant in the Lease Agreement. If the
State terminates their contract with Tenant for just cause, or otherwise upon
written approval of
4
Tenant, the State shall have the right to Sublease the facility under the same
terms and conditions as Tenant.
If upon contract termination, the State does not implement the
options specified above, Landlord and Tenant shall make all reasonable efforts
to terminate, assign and finalize settlement of the Lease, or otherwise to
reduce the Lease obligations to the State.
6. REPAIRS. During the term of this Lease and renewals of the
term of this Lease, Landlord shall, at Landlord's cost, keep the exterior roofs,
sidewalls, structural supports, and foundations of the building on the leased
property in good repair and make all necessary repairs to, or replacements.
Tenant shall, at Tenant's sole cost and expense, keep and
maintain in good working order and repair, the plumbing, heating, air
conditioning, electrical systems, water systems, sewer systems, and other items
on the leased property. Tenant shall, at Tenant's cost, perform ordinary regular
maintenance on the leased property and equipment and fixtures on the property,
including but not limited to plumbing, heating, air conditioning, electrical
systems, water systems and sewer systems.
7. WARRANTY FOR EQUIPMENT. Landlord shall warrant from one year
from the date that Tenant takes possession of the Leased premises the plumbing,
heating, air conditioning, electrical systems, water systems, sewer systems, and
other items on the leased property.
Said Landlord's warranty shall be in addition to any
manufacturers of retailers warranty for any items of equipment so installed on
Leased premises by Landlord for Tenant's use. Any warranty so granted pursuant
to this section shall not cover any damage to or repair to any
5
equipment or fixtures on the leased premises that are damaged or otherwise
rendered inoperable due to the neglect of Tenants, or its agents, employees or
inmates.
8. UTILITIES. Tenant shall pay all regular charges incurred for
the furnishing of gas, electricity, water, telephone service, garbage or refuse
service, and other public utilities to the leased property during the term of
this Lease or any renewals thereof.
9. TAXES. All real property taxes and assessments levied or
assessed against the leased property by any governmental entity, including any
special assessments imposed on or against the leased property for the
construction or improvement of public works in, on, or about the leased
property, shall be paid, before they become delinquent, by Landlord. All
personal property taxes and assessments levied or assessed against Tenant's
personal property on the leased property by any governmental entity shall be
paid, before they become delinquent, by Tenant.
10. INSURANCE. During the first year of the lease term, Tenant
shall, at Tenant's cost, maintain public liability and property damage insurance
regarding the operations of Tenant on the leased property with a single combined
liability limit in the minimum amount of $1,000,000.00 and property damage
limits of not less than $500,000.00. During subsequent years of the lease term,
Tenant will maintain such insurance with limits equal to the lesser of (a) the
limits indicated above or (b) the limits obtainable for the same premiums paid
by Tenant for such insurance for the first year of the lease term. Tenant shall
name Landlord as an additional insured on such insurance.
During the terms of this Lease, Tenant shall, at Tenant's cost,
maintain fire and extended coverage insurance on the leased property, in an
amount not less that the insurable replacement cost of the buildings,
structures, and contents. Landlord agrees that in the event of loss
6
due to fire or any other peril, Landlord will look solely to Tenant's insurance
for recovery and not to Tenant unless said loss is due to the negligence of
Tenants or its agents, employees or inmates. Landlord hereby grants to Tenant,
on behalf of any insurer providing insurance to Landlord with respect to the
leased property, a waiver of any right of subrogation which any such insurer of
Landlord may acquire against Tenant by virtue of payment of any loss under such
insurance. Landlord is to be named as additional insured on any fire or extended
coverage insurance.
11. DESTRUCTION OF LEASED PROPERTY. Should any improvements,
including buildings or other structures, located on the leased property be
damaged or destroyed during the term of this Lease or any renewals thereof,
Landlord shall, at Landlord's cost, promptly repair or replace the damaged or
destroyed improvements. During the construction period, Tenant's rent shall be
equitably abated unless such destruction was caused by the negligence of Tenant,
its agents, employees or inmates, in such case rent shall not be abated.
Notwithstanding the preceding, if, the California Department of Corrections
determines that Tenant will not be able to adequately use the leased property
for the uses contemplated by this Lease, within one hundred eighty days (180),
because of the degree of damage or the delay caused by construction, Tenant may
terminate this Lease by giving Landlord written notice thereof, in which event
Tenant shall have no further obligation of liability to Landlord by reason of
this Lease, except for the breach of any term of this Lease occurring prior to
termination.
However, in the event the damage or the destruction which causes
the terminations of this Lease pursuant to this Paragraph is caused or
attributable to Tenant through the negligence of Tenant, its agents, employees,
or inmates, then Tenant shall be responsible for any and all rent payments
remaining for the principal term of this Lease without abatement or adjustment.
7
12. SURRENDER OF PROPERTY. Tenant agrees that at the termination
or sooner cancellation of this Lease, as provided herein, Tenant shall surrender
the premises in good and normal condition, ordinary wear and tear accepted.
Tenant covenants and agrees in the event the premises is not surrendered in good
and acceptable condition that Tenant shall reimburse to Landlord any and all
costs incurred and bring the Lease premises back to good condition.
13. LANDLORD'S OFFERING FOR SALE/TENANT'S RIGHT OF FIRST REFUSAL.
Tenant hereby expressly acknowledges and agrees that Landlord may show the
Leased premises to any prospective purchasers of the real estate and/or
buildings thereon. Tenant agrees to allow Landlord, its agents, and/or assigns
reasonable access to the Lease premises upon 24 hours advance notice for the
purpose of showing said premises to potential Buyers.
During the principal term of this Lease, or any option period
hereunder, Tenant, so long as it is not in default of any terms or conditions of
this Lease, shall have the right of first refusal to purchase the Leased
premises. The right of first refusal shall be to equal, within thirty (30) days,
any bonafide offer to purchase the premises received by Landlord on the exact
same terms and conditions. Landlord shall notify Tenant, in writing, of any
offer to buy and Tenant shall have thirty (30) days from receipt of the notice
to exercise its rights hereunder. If after the expiration of thirty (30) days
Tenant has not entered into a binding contract with Landlord, and completing
purchase within sixty (60) days, Landlord shall be free to sell to the third
party purchaser if Landlord so desires.
14. ALTERATIONS AND/OR IMPROVEMENTS. Tenant agrees not to make
any alterations or improvements to the Leased premises without the express
written consent of the Landlord first had and received.
8
Landlord agrees not to unreasonably withhold consent hereunder,
however, any alteration or improvement by Tenant and consented thereto, shall be
at the sole cost and responsibility of Tenant.
Tenant agrees to notify Landlord in writing as to any desired
improvements and/or alterations anticipated.
If Landlord consents to said alteration or improvement and said
alteration or improvement becomes permanently affixed to the Leased premises at
the termination of this Lease, said alteration or improvement shall become the
property of Landlord.
Tenant hereby agrees that in the event an alteration or
improvement is consented to by Landlord, Tenant will notify Landlord in a timely
fashion so that Landlord may post, pursuant to law, notices of
non-responsibility for said works of improvement.
Landlord's consent to any alteration or improvement shall not be
deemed to be a continuing consent for any future alteration or improvement
anticipated by Tenant.
15. MEMORANDUM OF LEASE. Landlord and Tenant shall execute a
Memorandum of Lease to record in the official records of the county where the
leased property is located.
16. ATTORNEYS' FEES. Should any litigation be commenced between
the parties for the enforcement of any rights hereunder, the successful party in
such litigation shall be entitled to receive from the unsuccessful party all
costs incurred in connection therewith, including a reasonable amount for
attorneys' fees.
17. COMPLETE AGREEMENT. This Agreement sets forth the entire
Agreement of the parties and any and all prior or contemporaneous Agreements or
representations, whether oral or written, are superseded hereby.
9
18. WAIVER AND MODIFICATION OF TERMS. The waiver by either party
of the performance of any covenant, condition, obligation, or any aspect thereof
shall not invalidate this Agreement nor be deemed a waiver of any other
covenant, condition, obligation, or aspect thereof. No modification of this
Agreement shall be valid unless in writing and signed by the parties.
19. SEVERABILITY OF PROVISIONS. If any portion of this Agreement
is held or becomes invalid, the same shall not affect the validity of the
remainder hereof, which shall continue in full force and effect.
20. FURTHER ASSURANCES. The parties each agree to make, execute
and deliver such documents and undertake such other and further acts as may be
reasonably necessary or convenient to carry out the intent thereof.
21. TIME AND BENEFIT. Time is of the essence of this Agreement,
and each and every provision hereof. This Agreement shall be binding upon and
inure to the benefit of the heirs, executors, trustees, personal
representatives, administrators, successors and assigns of the parties.
22. TITLES. The titles of the articles, sections, and/or
subsections of this Agreement are for the convenience of the reader only and
shall not be used to construe the intent of the parties.
23. GOVERNING LAW. The laws of the State of California shall
govern as to the construction, interpretation, and enforcement of this
Agreement.
24. GENDER. As used in this Agreement, the masculine, feminine,
or neuter gender, and the singular or plural number shall each include the
others whenever the context so requires.
10
25. NOTICES. Any notices required or convenient to be given
hereunder shall be in writing, and unless, in fact, timely received, shall be
considered effectively given only upon mailing the same by United States prepaid
first-class certified or registered mail, return receipt requested, to the
recipient at the address shown herein below.
26. WARRANTY OF AUTHORITY. If Landlord is a partnership, the
parties signing this Agreement on behalf of Landlord warrant that they have
authority to sign this Agreement on behalf of the partnership, and indemnify
Tenant against all liability, claims, demands, damages, or costs, relating to
their authority to sign this Agreement on behalf of the partnership. Upon
execution of this Lease, Landlord shall deliver to Tenant a certified copy of a
recorded statement of partnership showing that the partners signing this Lease
on behalf of Landlord have the authority to do so. The partners signing this
Lease on behalf of Landlord represent and warrant that they have full authority
to do so and that this Lease binds the partnership and that the statement of
partnership presented to Tenant is the most recent statement of partnership and
is still effective.
27. EXHIBITS. At the time Tenant is signing this Lease, Exhibits
"A," "B," and "C" are not attached to this Lease Agreement. Landlord has
prepared said exhibits and presented them to Tenant for approval. Tenant has
approved said exhibits, in their latest form and the parties shall sign the
exhibits and attach them to this Lease Agreement. Upon such execution and
attachment of the exhibits, and upon execution of the Lease Agreement by
Landlord, the Lease Agreement shall become complete.
11
IN WITNESS WHEREOF, the parties have executed this Lease
Agreement in duplicate on the date shown opposite their names.
LANDLORD:
May 23, 1988 By /s/ JOHN OCHIPINTI
-------------------
John Ochipinti
2319 Lincoln Road
Yuba City, CA 95991
May 23, 1988 By /s/ BILL WARFIELD
------------------
Bill Warfield
1157 Hillcrest Avenue
Yuba City, CA 95991
TENANT:
ECLECTIC COMMUNICATIONS, INC.
1823 Knoll Drive
Ventura, Ca 93003
May 23, 1988 By /s/ ARTHUR MCDONALD
--------------------
Arthur McDonald,
President
12
AMENDMENT
TO
LEASE AGREEMENT
December 15, 1991
THIS AMENDMENT TO LEASE AGREEMENT is made between LIVE OAK
PROPERTIES, a California limited partnership, formerly SUN BELT PROPERTIES, a
California limited partnership ("landlord") and ECLECTIC COMMUNICATIONS, INC., a
California corporation ("tenant").
RECITALS.
28. Landlord and tenant have entered into a Lease Agreement dated May
23, 1988 (the "lease") for approximately five acres commonly known as 2800
Apricot Street, Live Oak, California (the "leased property").
29. Tenant operates a return to custody facility on the leased property
under contract with the California Department of Corrections.
30. Landlord has purchased approximately five additional acres adjoining
the leased property described on Exhibit A attached hereto and by this reference
incorporated herein (the "adjoining property").
31. Landlord intends to construct improvements on the leased property
and adjoining property as specified on Exhibit A hereto (the "additional
facilities").
32. Upon completion, landlord and tenant intend that tenant lease the
additional facilities and adjoining property from landlord to expand its return
to custody operations by housing and supervising additional clients on the
property.
AGREEMENT.
1. AMENDMENT OF LEASE. Landlord and tenant hereby amend the lease as
provided in this amendment. Except to the extent inconsistent with this
amendment, the lease shall continue in effect.
2. CONSTRUCTION OF ADDITIONAL FACILITIES. Landlord shall construct the
additional facilities in strict conformity with the plans and specifications
described on Exhibit A hereto and all
Page 1
applicable laws, statutes, ordinances, rules and regulations, and landlord shall
furnish all labor, materials, permits, fees, sales taxes and other costs
required for the additional facilities.
Landlord warrants that all materials and equipment used on the
additional facilities will be new unless otherwise specified, and that all work
will be of good quality, free from faults and defects and in conformance with
the plans and specifications. Landlord warrants the materials and workmanship on
the additional facilities for a period of one year from completion.
Landlord will have in effect a course of construction and liability
insurance policy with respect to the construction. The liability insurance will
name tenant as an additional insured, and will be in the minimum amount of one
million. Tenant shall have no risk of loss with respect to the construction.
After construction of the additional facilities is completed, risk of loss
relating to the additional facilities and adjoining property shall be determined
according to the lease.
3. COMPLETION OF CONSTRUCTION. Construction of the additional facilities
shall be deemed completed when the appropriate use and occupancy permits have
been obtained and when the additional facilities are acceptable for use and
occupancy by tenant and the State of California. Landlord shall give tenant two
weeks prior written notice of the date that the additional facilities will be
ready for use and occupancy.
Upon completion, landlord leases to tenant, and tenant leases from
landlord, the additional facilities and the adjoining property (including any
unimproved portions of the adjoining property) pursuant to this amendment and
the lease. Upon completion, the additional facilities and adjoining property
shall become part of the "leased property" for purposes of the lease. Upon
completion of the additional facilities, the "leased property" will comprise of
approximately ten acres, including all improvements thereon.
4. RENT. After construction of the additional facilities is completed,
the then current rent for the leased property shall be increased by $19,492.00
per month. This additional portion of the rent shall be adjusted according to
the cost of living formula contained in the lease, once each year, with the
first adjustment of the additional rent occurring one year after the date the
additional facilities are completed. The current rent provided in the lease
shall continue to be adjusted as of the date specified in the lease.
5. TERM. The term of the lease shall be extended as follows. The initial
term shall be for ten years, commencing when construction of the additional
facilities is completed. Tenant shall have the option to renew the lease two
times for additional periods of five years each, by giving landlord written
notice of its exercise of the option no later than ninety days before the
expiration of the preceding term.
6. CONTINGENCIES. Landlord agrees to complete construction of the
additional facilities no later than February 15, 1992; provided, however, that
this deadline shall be extended for a reasonable period of time (not to exceed
three month) if necessary to account for unavoidable delays
Page 2
beyond landlord's control, including delays caused by tenant, government
authorities, the elements, casualties, litigation, or labor or material
shortages. Landlord will also obtain and keep in force the appropriate permits
from the appropriate authorities allowing tenant's use of the additional
facilities as a return to custody facility under contract with the California
Department of Corrections.
7. RIGHTS OF THE STATE OF CALIFORNIA. The second paragraph of section
5(a) of the lease is revoked, and replaced with the following provision:
The State shall continue the monthly lease/use payments either: (1) for
the remainder of the lease period up to 120 months from commencement
date of the lease/use agreement for the additional facilities, or (2)
until that date when facility owner begins to obtain facility lease/use
payments from a replacement lessee approved by the State. The lease/use
costs will not exceed the lease amount paid by tenant in the lease
agreement. If the State terminates their contract with tenant for just
cause, or otherwise upon written approval of tenant, the State shall
have the right to sublease the facility under the same terms and
conditions as tenant.
The balance of section 5(a) of the lease shall remain in effect.
IN WITNESS WHEREOF, the parties have executed this Amendment to Lease
Agreement in duplicate on the date shown opposite their names.
DECEMBER 15, 1991 LIVE OAK PROPERTIES, a California
-----------------
limited partner ("landlord")
By /s/ JOHN OCHIPINTI
John Ochipinti, general partner
By /s/ BILL WARFIELD
Bill Warfield, general partner
JANUARY 2, 1992 ECLECTIC COMMUNICATION, INC.,
---------------
a California corporation ("tenant")
By /s/ ARTHUR MCDONALD
Arthur McDonald, President
Page 3
EXHIBIT 10.19
LEASE AGREEMENT
INTERSTATE UNIT
This Lease is made and entered into by and between the City of Big
Spring, Texas, a municipal corporation, referred to in this lease as Lessor, and
Ed Davenport, of McCulloch County, Texas, referred to in this lease as Lessee.
In consideration of the mutual covenants and agreements set forth in
this lease, and other good and valuable consideration, Lessor demises and leases
to Lessee, and Lessee leases from Lessor, all of Lot No. One (1), in Block No.
One (1), MID-TEX SUBDIVISION, an Addition to the City of Big Spring, Howard
County, Texas, filed in Envelope 132/B; the same being approximately 11.06 acre
tract out of the SW/4 of Section 26, Block 33, T-1-N, T&P.RR. Co. Survey, Howard
County, Texas, any and all improvements and personal property located on the
premises or used in connection with the ongoing correctional facility operated
thereon, said personal property more fully described on Exhibit "A" attached to
this lease. These premises are referred to in this lease as "the premises" or
"the leased premises."
Page 1
ARTICLE I. TERM
TERM OF LEASE
The term of this lease shall be for twenty (20) years commencing on July
1, 1996, unless sooner terminated or extended as provided in this lease.
Provided that Lessee is not in default beyond the expiration of any
applicable cure periods, Lessee shall have the right and option to extend the
term of this lease for three (3) successive periods of five (5) years, the first
such extended term to commence on the day following the expiration of the
initial term, and each additional extended term to commence on the day following
the expiration of the immediately preceding extended term. Lessee shall exercise
its option to extend the term by giving Lessor at least thirty (30) days'
written notice prior to the expiration of the initial term, in the case of the
first option to extend, or the extended term, in the case of successive options
to extend. Each extended term shall be on the same terms, conditions and
covenants that were in effect during the initial term or during the preceding
extended term (as applicable).
Page 2
HOLDOVER
If Lessee holds over and continues in possession of the leased premises
after expiration of the term of this lease or any extension of that term, other
than as provided in the preceding paragraph, Lessee will be deemed to be
occupying the premises on the basis of a month-to-month tenancy, subject to all
of the terms and conditions of this lease.
ARTICLE II. RENT
FIXED RENT
During the term of this lease, Lessee agrees to pay to Lessor the sum of
SEVENTY TWO THOUSAND DOLLARS ($72,000.00) per year payable in monthly
installments of SIX THOUSAND AND 00/100 DOLLARS ($6,000.00) on or before the
first day of each month, beginning the first day of June, 1996, as fixed rental
for each succeeding month during such period. This fixed rent will increase on
each fifth (5th) anniversary of this Lease, by one percent (1%) for each point
of increase in the Consumer Price Index based on the United States average
published by the Bureau of Labor Statistics, U.S. Department of Labor, at the
effective date of this Lease. Such increase shall become effective immediately
upon notice by Lessor
Page 3
of the adjusted fixed rent amount. Lessee agrees to pay this fixed rent to
Lessor at Lessor's office, located at 310 Nolan, Big Spring, Texas or at such
other location or locations as Lessor shall from time to time designate by
written notice to Lessee.
If in any two consecutive 30-day billing cycles the average inmate
population provided by the Federal Bureau of Prisons or other applicable
governmental authority for the correctional facility operated on the leased
premises is 60% or less of the maximum authorized capacity for the facility,
fixed rent payable hereunder shall be reduced by 40% until the next 30-day
billing cycle when the average inmate population is restored to a level of at
least 60% of maximum authorized capacity. If in any two consecutive 30-day
billing cycles the average inmate population provided by the Federal Bureau of
Prisons or other applicable governmental authority for the correctional facility
operated on the leased premises is 25% or less of the maximum authorized
capacity for the facility, fixed rent payable hereunder shall be eliminated
until the next 30-day billing cycle when the average inmate population is
restored to a level of at least 25% of maximum authorized capacity.
Notwithstanding the foregoing, the period of
Page 4
abatement under the two preceding sentences shall not exceed thirty-six (36)
months in the aggregate.
ARTICLE III. USE OF PREMISES
PERMITTED USE
Lessee may use the premises to operate and conduct a correctional or
detention facility. Lessee may not use the premises for any other purpose
without the written consent of Lessor.
WASTE, NUISANCE, OR ILLEGAL USES
Lessee shall not use, or permit the use of, the premises in any manner
that results in waste of the premises or constitutes a nuisance or violates any
statute, ordinance, rule, or regulation applicable to the premises or for any
illegal purpose.
ARTICLE IV. REPAIRS AND MAINTENANCE
REPAIRS AND MAINTENANCE BY LESSEE
Lessee shall, throughout the term of this lease and any extensions of
that term, at its own expense and risk, maintain the leased premises and all
improvements on the leased premises in good order and condition, including but
not limited to making all repairs and replacements necessary to keep the
premises and
Page 5
improvements in such condition, normal wear and tear excepted, and to repair and
replace all personal property described in Exhibit "B" as reasonably required to
continue Lessee's operations on the premises.
ARTICLE V. UTILITIES
UTILITY CHARGES
Lessee shall pay all utility charges, including but not limited to
water, electricity, heat, gas, and telephone service, used in and about the
leased premises during the term of the lease, all such charges to be paid by
Lessee directly to the utility company or municipality furnishing the same,
before the same shall become delinquent.
GARBAGE REMOVAL
Lessee shall pay for the removal of all garbage and rubbish from the
leased premises during the term of the lease.
ARTICLE VI. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS
CONSENT OF LESSOR
Lessee shall have the right without Lessor's consent to make, at
Lessee's sole cost and expense, any alterations, additions, or improvements to
the leased premises mandated by the Federal Bureau
Page 6
of Prisons or other applicable governmental authority having jurisdiction over
the leased premises. Lessee shall promptly notify Lessor of any such mandated
alterations, additions or improvements. Except as provided above, Lessee shall
not make any alterations, additions or improvements to the leased premises
without the prior written consent of Lessor, which consent shall not be
unreasonably withheld or delayed. Lessee shall obtain all approvals required for
any alterations, additions or improvements made by Lessee to the leased
premises.
PROPERTY OF LESSOR
All alterations, additions, or improvements made by Lessee and all
personal property used in connection with the operation of the leased premises
shall become the property of Lessor at the termination of this lease, and Lessee
shall have no obligation to remove such alterations, additions, improvements or
personal property unless they were made or installed in violation of the
preceding paragraph.
ARTICLE VII. SIGNS
Lessee shall have the right to erect signs on any portion of the leased
premises, including, but not limited to, the exterior
Page 7
walls of the premises, subject to applicable laws, ordinances, and regulations.
Lessee must remove all signs at the termination of this lease and repair any
damage resulting from the erection or removal of the signs.
ARTICLE VIII. MECHANIC'S LIEN
Lessee will not cause any mechanic's lien or liens to be placed upon the
leased premises or improvements on the premises. If such a mechanic's lien is
filed on the leased premises, Lessee will promptly pay the lien; provided that
Lessee shall have the right to contest in good faith and with reasonable
diligence the validity of any such lien or claimed lien if Lessee shall post the
appropriate bond or give to Lessor such security as may be deemed reasonably
satisfactory to Lessor to insure payment thereof (and to prevent any sale,
foreclosure, or forfeiture of the leased premises by reason of non-payment
thereof) and provided further, that on final determination of the lien or claim
for lien, Lessee shall immediately pay any judgment rendered, with all proper
costs and charges, and shall have the lien released and the judgment satisfied.
Page 8
ARTICLE IX. INSURANCE AND INDEMNITY
PROPERTY INSURANCE
Lessee shall, at his own expense, during the term of this lease, keep
all buildings and improvements on the leased premises and all personal property
used in connection with the operation of the leased premises insured against
loss or damage by fire or theft, with extended coverage to include direct loss
by windstorm, hail, explosion, riot, or riot attending a strike, civil
commotion, aircraft, vehicles, and smoke, in the aggregate amount of not less
than 100% of replacement value for the entire term this Lease. Such policy or
policies of insurance shall name Lessee and Lessor as loss payee.
LIABILITY INSURANCE AND INDEMNITY
Lessee, at its own expense, shall provide and maintain in force during
the term of this lease, primary and excess liability insurance coverage with
limits in the total amount of FIVE MILLION DOLLARS ($5,000,000.00), covering and
naming both Lessor and Lessee as insureds, for any liability for property damage
or personal injury arising as a result of Lessee's occupation of and operation
on the leased premises. This insurance is to be carried by one or
Page 9
more insurance companies authorized to transact business in Texas
and approved by Lessor.
Lessee agrees to indemnify and hold Lessor harmless from and against all
judgments, costs, damages and expenses which may accrue against, be charged to
or recovered from Lessor by reason or on account of damage to the property of,
injury to or death of any person, arising from the use and/or occupancy of the
demised premises by Lessee, Lessee's agents, employees, contractors and
subcontractors, and/or from the use and/or occupancy by Lessee, Lessee's agents,
employees, contractors, and subcontractors of any appurtenant facilities or
property of Lessor, and/or from the use and/or occupancy by Lessee, Lessee's
agents, employees, contractors, and subcontractors of any facilities or property
of Lessor, provided that Lessor shall give Lessee prompt and timely notice of
any claim made or suit instituted which, in any way, affects Lessee or its
insurer, and Lessee or its insurer shall have the right to compromise and defend
the same to the extent of their own interest; provided, further, that any
failure by Lessor to give Lessee the foregoing notice shall not affect the
liability of Lessee or his insurer hereunder to Lessor if Lessee has received
Page 10
actual timely notice of said claim or suit. Any final judgment rendered against
Lessor for any cause for which Lessee is liable hereunder shall be conclusive
against Lessee as to liability and amount.
INSURANCE CERTIFICATES AND NOTIFICATION OF CANCELLATION
Lessee shall furnish Lessor with certificates of all insurance
required by this article. Lessee shall notify Lessor at least ten (10) days
prior to any cancellation of any insurance policy required by this Lease.
ARTICLE X. DAMAGE OR DESTRUCTION OF PREMISES
NOTICE TO LESSOR
If the leased premises, or any structures or improvements on the leased
premises, should be damaged or destroyed by fire, tornado, or other casualty,
Lessee shall give immediate written notice of the damage or destruction to
Lessor, including a description of the damage and, as far as known to Lessee,
the cause of the damage.
DESTRUCTION OF PREMISES
If the structures or improvements on the leased premises should be
totally or partially destroyed by fire, tornado, or other
Page 11
casualty, then the Lessee may elect either to repair or replace the same to the
extent of the insurance proceeds available (in which case the rent payable
hereunder shall be abated until such time as the Lessee can reasonably resume
operation of its business, and the term hereof shall be extended for a period
equal to the rent abatement period), or not to repair or replace the same and to
terminate this lease, effective as of the date of written notification as
provided in the preceding paragraph. In the event that Lessee elects to
terminate this Lease, all property insurance proceeds shall be allocated between
Lessor and Lessee. The allocation shall be based upon a yearly proration over a
35 year period (e.g., if the casualty occurs in year three(3) of the lease term,
Lessor shall receive 3/35 of the proceeds and Lessee shall receive 32/35 of the
proceeds.
ARTICLE XI. DEFAULT, ESCAPE AND CURE
DEFAULT BY LESSEE
If Lessee shall allow the rent to be in arrears more than twenty (20)
days after written notice of such delinquency, or shall remain in default under
any other condition of this lease for a period of thirty (30) days after written
notice from Lessor
Page 12
(provided that, if such default is not reasonably capable of cure within said
30-day period, Lessee shall not be deemed in default so long as Lessee has
commenced to cure the default within said 30-day period and diligently
prosecutes such cure to completion), Lessor may at its option, without further
notice to Lessee, terminate this lease or, in the alternative, Lessor may, in
addition to any other remedies provided by law, re-enter and take possession of
the premises and remove all persons and property without being deemed guilty in
any manner of trespass and relet the premises, or any part of the premises, for
all or any part of the remainder of the lease term, to a party satisfactory to
Lessor and at such monthly rental as Lessor may with reasonable diligence be
able to secure.
LESSOR'S LIEN
It is expressly agreed that, in the event of default by Lessee in the
payment of rent or any other sum due from Lessee to Lessor under the terms of
this lease, Lessor shall have a lien upon all fixtures, chattels, or other
property of any description belonging to Lessee that are placed in, or become a
part of, the leased premises as security for rent due and to become due for the
remainder of the current lease term and any other sum due from
Page 13
Lessee to Lessor. This lien shall not be in lieu of, or in any way affect, the
statutory landlord's lien given by law but shall be in addition to that lien,
and Lessee grants to Lessor a security interest in all of Lessee's property
placed in or on the leased premises for purposes of this contractual lien. This
shall not prevent the sale by Lessee of any merchandise or property in the
ordinary course of business free of such lien. In the event of default by
Lessee, and in the event Lessor exercises the option to terminate the leasehold,
re-enter, and relet the premises as provided in the preceding paragraph, then
Lessor, after giving reasonable notice to Lessee of the intent to take
possession and giving an opportunity for a hearing on the matter, may take
possession of all of Lessee's property on the premises and sell it at public or
private sale after giving Lessee reasonable notice of the time and place of any
public sale or of the time after that any private sale is to be made, for cash
or on credit, for such prices and terms as Lessor deems best, with or without
having the property present at the sale. The proceeds of the sale shall be
applied first to the necessary and proper expense of removing, storing, and
selling such property, then to the payment of any rent due or to
Page 14
become due under this lease, with the balance, if any, to be paid
to Lessee.
DEFAULT BY LESSOR
If Lessor defaults in the performance of any term, covenant, or
condition required to be performed by it under this agreement, and such default
continues for more than thirty(30) days after written notice to Lessor (provided
that, if such default is not reasonably capable of cure within said 30-day
period, Lessor shall not be deemed in default so long as Lessor has commenced to
cure the default within said 30-day period and diligently prosecutes such cure
to completion), Lessee may elect to do either one of the following:
a. Lessee may remedy such default by any necessary action
and, in connection with such remedy, may pay any
reasonable expenses and employ counsel. All sums
expended, or obligations incurred, by Lessee in
connection with remedying Lessor's default shall be paid
by Lessor to Lessee on demand and, on failure of such
reimbursement, Lessee may, in addition to any other right
or remedy that Lessee may have, deduct these costs and
Page 15
expenses from rent subsequently becoming due under this
lease.
b. Lessee may terminate this lease on giving at least sixty (60)
days' written notice to Lessor of such intention. In the event
Lessee elects this option, the lease will be terminated on the
date designated in Lessee's notice, unless Lessor has cured the
default prior to expiration of the sixty (60) day period.
ESCAPABILITY BY LESSEE
In the event that Lessor exercises its right to cancel the Operating
Agreement (hereinafter defined) as permitted under Section 4 of the Operating
Agreement, Lessee shall have the election, exercisable by written notice to
Lessor, to terminate this Lease.
CUMULATIVE REMEDIES
All rights and remedies of Lessor and Lessee under this Article shall be
cumulative, and none shall exclude any other right or remedy provided by law or
by any other provision of this lease.
All such rights and remedies may be exercised and enforced
Page 16
concurrently and whenever, and as often, as occasion for their
exercise arises.
WAIVER OF BREACH
A waiver by either Lessor or Lessee of a breach of this lease by the
other party does not constitute a continuing waiver or a waiver of any
subsequent breach of the lease.
ARTICLE XII. INSPECTION BY LESSOR
Lessee shall permit Lessor and Lessor's agents, representatives, and
employees to enter into and on the leased premises at all reasonable times,
agreed to by Lessee in advance, for the purpose of inspection or any other
purpose necessary to protect Lessor's interest in the leased premises or to
perform Lessor's duties under this lease. Said inspections shall have prior
approval by management of the facility, to enable management to provide all
security precautions necessary.
ARTICLE XIII. ASSIGNMENT AND LEASE
ASSIGNMENT AND SUBLETTING BY LESSEE
Lessee shall have the right to assign, sublet or otherwise transfer its
rights or obligations under this lease or assign, sublet or otherwise transfer
any right or interest in this lease or
Page 17
in the leased premises or the improvements or personal property located on the
leased premises; provided, however, that Lessee must first have obtained the
written consent of the Lessor, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, Lessee may, without Lessor's consent, secure
financing or general credit lines, and as security thereof, Lessee shall have
the right to grant a leasehold mortgage in this Lease and enter into such other
leasehold mortgage loan documents as may be requested by its lenders. Upon
Lessee providing notice of such financing to Lessor, Lessor agrees that (i)
except as otherwise provided in this Lease, there shall be no cancellation or
surrender of this Lease by joint action of Lessor and Lessee without the prior
consent in writing of the holder of such leasehold mortgage, (ii) Lessor shall
give the holder of such leasehold mortgage concurrent notice of any defaults by
Lessee, and allow such holder the same period to remedy or cause to be remedied
such defaults, but such holder shall have no obligation to cure the same, (iii)
the holder of such leasehold mortgage may be added to the "loss payee"
endorsement of any and all insurance policies carried by Lessee, and (iv) if the
holder of such leasehold mortgage (or any
Page 18
affiliate of such holder) succeeds to the interest of Lessee, whether by
foreclosure or otherwise, Lessor shall recognize such holder (or affiliate) as
the lessee under this Lease and continue to be bound by the terms hereof on the
condition that such holder (or affiliate) shall cure all outstanding defaults of
Lessee of which holder has been made aware by notice as provided herein and such
holder attorns to Lessor.
ASSIGNMENT AND SUBLETTING BY LESSOR
Lessor may not assign, encumber or otherwise transfer its rights or
obligations under this lease or any right or interest in this lease or in the
leased premises or the improvements or personal property located on the leased
premises, without the prior written consent of Lessee, which consent shall not
be unreasonably withheld.
ARTICLE XIV. CONDEMNATION
If during the term of this lease or any extension thereof, all or any
part of the leased premises shall be taken for any public or quasi-public use
under any governmental law, ordinance, or regulation, or by right of eminent
domain, or should be sold to the condemning authority under threat of
condemnation, Lessee may
Page 19
terminate this lease by giving written notice to Lessor within thirty (30) days
after possession of the condemned portion is taken by the entity exercising the
power of condemnation. In the event that Lessee does not or fails to exercise
its right to terminate this lease, Lessee shall to the extent of available
condemnation proceeds restore and rebuild the building and other improvements
situated on the leased premises to make them reasonably tenantable and suitable
for the uses for which the premises are leased (in which case the rent payable
hereunder shall be abated until such time as the Lessee can reasonably resume
operation of its business, and the term hereof shall be extended for a period
equal to the rent abatement period). Any excess proceeds shall be allocated
between Lessor and Lessee in the same manner as provided in the last sentence of
this paragraph. If after partial condemnation, this lease is not terminated, the
fixed rent payable under Article II of this lease shall be adjusted equitably
for the then remaining term of this lease. In the event that Lessee exercises
its right to terminate this lease, all condemnation proceeds shall be allocated
between Lessor and Lessee. The allocation shall be based on a yearly proration
over a 35 year period (e.g., if the condemnation
Page 20
occurs in year three (3) of the lease term, Lessor shall receive 3/35 of the
proceeds and Lessee shall receive 32/35 of the proceeds).
CONDEMNATION BY LESSOR
Lessor agrees that it will not condemn any portion of the leased
premises during any term of this lease.
ARTICLE XVI. MISCELLANEOUS
PERSONAL PROPERTY
All personal property located on the premises or used in connection with
the ongoing correctional facility operated thereon shall become the property of
Lessor at the expiration or earlier termination of this lease.
TAXES
Although the parties believe that the leased premises are not subject to
ad valorem taxation or property taxes, the parties have agreed that should the
property be determined to be subject to ad valorem or property taxes, any and
all ad valorem or property taxes on the leased premises or the improvements or
personal property located thereon shall be the sole responsibility of Lessor,
and shall be paid by Lessor; provided, however, that Lessee
Page 21
shall be responsible for ad valorem taxes with respect to all replacement
personal property added to the leased premises by Lessee pursuant to Section 4
of the Lease.
NOTICES AND ADDRESSES
All notices required under this lease must be given by certified mail,
return receipt requested, addressed to the proper party, at the following
addresses:
Lessor:
City Manager
City of Big Spring, Texas
310 Nolan
Big Spring, TX 79720
Lessee:
Ed Davenport
c/o Midtex Detentions, Inc.
ATTENTION: Johnny Rutherford
610 Main, Suite A
Big Spring, TX 79720
Either party may change the address to which notices are to be sent it by giving
the other party notice of the new address in the manner provided in this
section. Additionally, Lessor agrees to provide a copy of any notice to Lessee
to any mortgagee of Lessee for which it has been provided an address and Lessor
agrees that any such mortgagee shall be afforded the same rights to cure any
default of Lessee as are available to Lessee under this lease.
Page 22
PRIOR AGREEMENTS SUPERSEDED
This agreement constitutes the sole and only Lease agreement of the
parties relating to the leased premises and supersedes any prior understandings
or written or oral agreements between the parties respecting the leased premises
subject to this Lease agreement.
AMENDMENT
No amendment, modification, or alteration of the terms of this agreement
shall be binding unless it is in writing, dated subsequent to the date of this
agreement, and duly executed by the parties to this agreement.
RIGHTS AND REMEDIES CUMULATIVE
The rights and remedies provided by this lease agreement are cumulative,
and the use of any one right or remedy by either party shall not preclude or
waive that party's right to use any or all other remedies. The rights and
remedies provided in this lease are in addition to any other rights the parties
may have by law, statute, ordinance, or otherwise.
Page 23
ATTORNEY'S FEES AND COSTS
If, as a result of a breach of this agreement by either party, the other
party employs an attorney or attorneys to enforce its rights under this lease,
then the breaching or defaulting party agrees to pay the other party the
reasonable attorney's fees and costs incurred to enforce the lease.
FORCE MAJEURE
Neither Lessor nor Lessee shall be required to perform any term,
condition, or covenant in this lease so long as such performance is delayed or
prevented by force majeure, which shall mean acts of God, material or labor
restrictions by any governmental authority, civil riot, floods, and any other
cause not within the control of Lessor or Lessee and which by the exercise of
due diligence Lessor or Lessee is unable, wholly or in part, to prevent or
overcome.
TIME OF ESSENCE
Time is of the essence of this agreement.
CROSS-DEFAULT
Concurrent with the execution of this Lease, (i) Lessee has
assigned its interest in this lease to Cornell Corrections of
Page 24
Texas, Inc. (ACornell@) and (ii) Lessor and Cornell have entered into an
Operating Agreement (the AOperating Agreement") wherein Lessor has engaged
Cornell to operate the correctional facility located on the leased premises.
Lessor and Lessee hereby agree that a default by Lessor under the Operating
Agreement shall constitute a default by Lessor under this lease, and following
notice and the expiration of any curative rights specified in the Operating
Agreement, Lessee shall have the right to terminate this lease by delivering
written notice of termination to Lessor.
The undersigned Lessor and Lessee execute this agreement as of the 1st
day of July, 1996, at Houston, Harris County, Texas.
Lessor:
CITY OF BIG SPRING, TEXAS
BY: /s/ TIM BLACKSHEAR
-------------------
Tim Blackshear, Mayor
City of Big Spring, Texas
310 Nolan
Big Spring, TX 79720
ATTEST:
/s/ TOM FERGUSON
- ----------------
Tom Ferguson, City Secretary
Page 25
Lessee:
/s/ ED DAVENPORT
----------------
Ed Davenport
THE STATE OF TEXAS ss.
COUNTY OF Harris ss.
This instrument was acknowledged before me on the 9th day of July, 1996,
by TIM BLACKSHEAR as Mayor of the CITY OF BIG SPRING, TEXAS.
/s/ CHARLOTTE POE
--------------------
Notary Public, State of Texas
THE STATE OF TEXAS ss.
COUNTY OF Harris ss.
This instrument was acknowledged before me on the 9th day of July, 1996,
by ED DAVENPORT.
/s/ CHARLOTTE POE
--------------------
Notary Public, State of Texas
Page 26
ASSIGNMENT AND ASSUMPTION OF LEASES
THIS ASSIGNMENT AND ASSUMPTION OF LEASES (this "Assignment") is
made this 1st day of July, 1996, from ED DAVENPORT ("Assignor") to CORNELL
CORRECTIONS OF TEXAS, INC., a Delaware corporation ("Assignee"), as follows:
RECITALS
A. Assignor is a party to those certain real estate leases
(collectively, the "Leases") between Assignor and The City of
Big Spring (the "City") listed below:
(1) Lease Agreement by and between the City, as Lessor, and
Assignor, as Lessee, dated July 1, 1996
(2) Industrial Park Lease Agreement by and between the City,
as Lessor, and Assignor, as Lessee, dated August 7,
1990, as amended by Addendum, dated November 26, 1990
(3) Amended Sublease Agreement by and between Assignor, as
Sub-Lessor, and the City, as Sub-Lessee, dated July 1,
1996
(4) Secondary Sublease Agreement by and between the City, as
Secondary Sub-Lessor, and Assignor, as Secondary
Sub-Lessee, dated July 1, 1996
(5) Lease by and between the City, as Lessor, and Assignor,
as Lessee, dated February 18, 1994, as amended by Lease
Amendment, dated as of October 1, 1994
(6) Amended Sublease Agreement by and between Assignor, as
Sub-Lessor, and the City, as Sub-Lessee, dated July 1,
1996
(7) Secondary Sublease Agreement by and between the City, as
Secondary Sub-Lessor, and Assignor, as Secondary
Sub-Lessee, dated July 1, 1996
B. Assignor desires to assign all of its right, title and interest
in each of the Leases to Assignee.
C. Assignee desires to assume the Assignor's obligations under each
of the Leases.
AGREEMENT
Now, therefore, for and in consideration of Ten Dollars ($10.00)
and other good and valuable consideration, in hand paid by Assignee to Assignor,
the receipt and sufficiency of which are hereby acknowledged and confessed,
effective as of the date hereof, Assignor hereby assigns to Assignee all right,
title and interest Assignor may have in and to the Leases. From and after the
date hereof, Assignee hereby agrees to be bound by all the terms and provisions
of the Leases and hereby assumes and agrees to pay and perform all obligations
of Assignor under the Leases. Assignee agrees to indemnify, defend and save
harmless Assignor from any and all claims and losses accruing from and after the
date hereof with respect to the Leases.
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment and Assumption of Leases as of the date set forth above.
ASSIGNOR:
ED DAVENPORT
/s/ ED DAVENPORT
--------------------
Ed Davenport
ASSIGNEE:
CORNELL CORRECTIONS OF TEXAS, INC.
By /s/ DAVID M. CORNELL
--------------------
David M. Cornell,
President
JOINDER
The City of Big Spring (the "City") hereby executes this joinder
to acknowledge the City's release of Assignor from any and all liability
pursuant to the Leases.
Dated as of July 9, 1996.
THE CITY OF BIG SPRING
By /s/ TIM BLACKSHEAR
------------------
Tim Blackshear, Mayor
City of Big Spring, Texas
Attest:
/s/ TOM FURGUSON
- ----------------
Tom Ferguson, City Secretary
EXHIBIT 10.20
SECONDARY SUBLEASE AGREEMENT
AIRPARK UNIT
This Secondary Sublease is made and entered into by and between the City
of Big Spring, Texas, a municipal corporation, referred to in this Secondary
Sublease as Secondary Sub-Lessor, and Ed Davenport, of McCulloch County, Texas,
referred to in this Secondary Sublease as Secondary Sub-Lessee.
In consideration of the mutual covenants and agreements set forth in
this Secondary Sublease, and other good and valuable consideration, Secondary
Sub-Lessor demises and leases to Secondary Sub-Lessee, and Secondary Sub-Lessee
leases from Secondary Sub- Lessor, the real property situated on a 14.688 acre
tract of land out of Sections 2 and 11, Block 33, T-1-S, T & P Ry. Co. Survey,
Howard County, Texas, Big Spring Airport (formerly Webb Air Force Base), said
tract being more particularly described by metes and bounds on Exhibit "A"
attached hereto, and any and all improvements and personal property located on
the premises or used in connection with the ongoing correctional facility
operated thereon, said personal property more fully described on Exhibit "B"
attached to this Secondary Sublease. These premises are referred to in this
Secondary Sublease as "the premises" or "the leased premises."
Page 1
ARTICLE I. TERM
TERM OF LEASE
The term of this Secondary Sublease shall begin upon execution and end
on the 7th day of August, 2015, unless sooner terminated or extended as provided
in this Secondary Sublease.
Provided that Secondary Sub-Lessee is not in default beyond the
expiration of any applicable cure periods, Secondary Sub-Lessee shall have the
right and option to extend the term of this Secondary Sublease for three (3)
successive periods of five (5) years, the first such extended term to commence
on the day following the expiration of the initial term, and each additional
extended term to commence on the day following the expiration of the immediately
preceding extended term. Secondary Sub-Lessee shall exercise its option to
extend the term by giving Secondary Sub-Lessor at least thirty (30)days' written
notice prior to the expiration of the initial term, in the case of the first
option to extend, or the extended term, in the case of successive options to
extend. Each extended term shall be on the same terms, conditions and covenants
that were in effect during the initial term or during the preceding extended
term (as applicable).
Page 2
HOLDOVER
If Secondary Sub-Lessee holds over and continues in possession of
the leased premises after expiration of the term of this Secondary Sublease or
any extension of that term, other than as provided in the preceding paragraph,
Secondary Sub-Lessee will be deemed to be occupying the premises on the basis of
a month-to-month tenancy, subject to all of the terms and conditions of this
Secondary Sublease.
ARTICLE II. RENT
FIXED RENT
During the term of this Secondary Sublease, Secondary Sub Lessee agrees
to pay to Secondary Sub-Lessor the sum of SEVENTY-TWO THOUSAND DOLLARS
($72,000.00) per year payable in monthly installments of SIX THOUSAND AND 00/100
DOLLARS ($6,000.00) on or before the first day of each month, beginning the
first day of June, 1996, as fixed rental for each succeeding month during such
period. This fixed rent will increase on each fifth (5th) anniversary of this
Secondary Sublease, by one percent (1%) for each point of increase in the
Consumer Price Index based on the United States average published by the Bureau
of Labor Statistics, U.S. Department of Labor, at the effective date of this
Secondary Sublease. Such increase shall become effective immediately upon
Page 3
notice by Secondary Sub-Lessor of the adjusted fixed rent amount. Secondary
Sub-Lessee agrees to pay this fixed rent to Secondary Sub-Lessor at Secondary
Sub-Lessor's office, located at 310 Nolan, Big Spring, Texas or at such other
location or locations as Secondary Sub-Lessor shall from time to time designate
by written notice to Secondary Sub-Lessee.
If in any two consecutive 30-day billing cycles the average
inmate population provided by the Federal Bureau of Prisons or other applicable
governmental authority for the correctional facility operated on the leased
premises is 60% or less of the maximum authorized capacity for the facility,
fixed rent payable hereunder shall be reduced by 40% until the next 30-day
billing cycle when the average inmate population is restored to a level of at
least 60% of maximum authorized capacity. If in any two consecutive 30-day
billing cycles the average inmate population provided by the Federal Bureau of
Prisons or other applicable governmental authority for the correctional facility
operated on the leased premises is 25% or less of the maximum authorized
capacity for the facility, fixed rent payable hereunder shall be eliminated
until the next 30-day billing cycle when the average inmate population is
restored to a level of at least 25% of maximum authorized capacity.
Notwithstanding the foregoing, the period of
Page 4
abatement under the two preceding sentences shall not exceed thirty-six (36)
months in the aggregate.
ARTICLE III. USE OF PREMISES
PERMITTED USE
Secondary Sub-Lessee may use the premises to operate and conduct a
correctional or detention facility. Secondary Sub-Lessee may not use the
premises for any other purpose without the written consent of Secondary
Sub-Lessor.
WASTE, NUISANCE, OR ILLEGAL USES
Secondary Sub-Lessee shall not use, or permit the use of, the premises
in any manner that results in waste of the premises or constitutes a nuisance or
violates any statute, ordinance, rule, or regulation applicable to the premises
or for any illegal purpose.
ARTICLE IV. REPAIRS AND MAINTENANCE
REPAIRS AND MAINTENANCE BY SECONDARY SUB-LESSEE
Secondary Sub-Lessee shall, throughout the term of this
Secondary Sublease and any extensions of that term, at his own expense and risk,
maintain the leased premises and all improvements on the leased premises in good
order and condition, including but not limited to making all repairs and
replacements necessary to keep the premises and improvements in such condition,
normal wear and tear excepted, and to repair and replace all personal property
Page 5
described in Exhibit "B" as reasonably required to continue Secondary
Sub-Lessee's operations on the premises.
ARTICLE V. UTILITIES
UTILITY CHARGES
Secondary Sub-Lessee shall pay all utility charges, including but not
limited to water, electricity, heat, gas, and telephone service, used in and
about the leased premises during the term of this Secondary Sublease, all such
charges to be paid by Secondary Sub-Lessee directly to the utility company or
municipality furnishing the same, before the same shall become delinquent.
GARBAGE REMOVAL
Secondary Sub-Lessee shall pay for the removal of all garbage and
rubbish from the leased premises during the term of the Secondary Sublease.
ARTICLE VI. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS
CONSENT OF SECONDARY SUB-LESSOR
Secondary Sub-Lessee shall have the right, at Secondary Sub- Lessee's
sole cost and expense, any alterations, additions, or improvements to the leased
premises. Secondary Sub-Lessee shall promptly notify Secondary Sub-Lessor of any
such mandated alterations, additions or improvements. Secondary Sub-Lessee shall
not make any alterations, additions or improvements to the leased
Page 6
premises without the prior written consent of Secondary Sub-Lessor, which
consent shall not be unreasonably withheld or delayed. Secondary Sub-Lessee
shall obtain all approvals required for any alterations, additions or
improvements made by Secondary Sub-Lessee to the leased premises, including
approvals of FAA as required by the Indenture between the United States of
America and the City of Big Spring, Texas, dated October 6, 1978.
PROPERTY OF SECONDARY SUB-LESSOR
All alterations, additions, or improvements made by Secondary Sub-Lessee
and all personal property used in connection with the operation of the leased
premises shall become the property of Secondary Sub-Lessor at the termination of
this Secondary Sublease, and Secondary Sub-Lessee shall have no obligation to
remove such alterations, additions, improvements or personal property unless
they were made or installed in violation of the preceding paragraph.
ARTICLE VII. SIGNS
Secondary Sub-Lessee shall have the right to erect signs on any portion
of the leased premises, including, but not limited to, the exterior walls of the
premises, subject to applicable laws, ordinances, and regulations. Secondary
Sub-Lessee must remove all
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signs at the termination of this Secondary Sublease and repair any damage
resulting from the erection or removal of the signs.
ARTICLE VIII. MECHANIC'S LIEN
Secondary Sub-Lessee will not cause any mechanic's lien or liens to be
placed upon the leased premises or improvements on the premises. If such a
mechanic's lien is filed on the leased premises, Secondary Sub-Lessee will
promptly pay the lien; provided that Secondary Sub-Lessee shall have the right
to contest in good faith and with reasonable diligence the validity of any such
lien or claimed lien if Secondary Sub-Lessee shall post the appropriate bond or
give to Secondary Sub-Lessor such security as may be deemed reasonably
satisfactory to Secondary Sub-Lessor to insure payment thereof (and to prevent
any sale, foreclosure, or forfeiture of the leased premises by reason of
non-payment thereof) and provided further, that on final determination of the
lien or claim for lien, Secondary Sub-Lessee shall immediately pay any judgment
rendered, with all proper costs and charges, and shall have the lien released
and the judgment satisfied.
ARTICLE IX. INSURANCE AND INDEMNITY
PROPERTY INSURANCE
Secondary Sub-Lessee shall, at his own expense, during the
term of this Secondary Sublease, keep all buildings and
Page 8
improvements on the leased premises and all personal property used in connection
with the operation of the leased premises insured against loss or damage by fire
or theft, with extended coverage to include direct loss by windstorm, hail,
explosion, riot, or riot attending a strike, civil commotion, aircraft,
vehicles, and smoke, in the aggregate amount of not less than 100% replacement
value for the entire term this Secondary Sublease. Such policy or policies of
insurance shall name Secondary Sub-Lessee and Secondary Sub- Lessor as loss
payee.
LIABILITY INSURANCE AND INDEMNITY
Secondary Sub-Lessee, at his own expense, shall provide and maintain in
force during the term of this Secondary Sublease, primary and excess liability
insurance coverage with limits in the amount of FIVE MILLION DOLLARS
($5,000,000.00), covering and naming both Secondary Sub-Lessor and Secondary
Sub-Lessee as insureds, for any liability for property damage or personal injury
arising as a result of Secondary Sub-Lessee's occupation of and operation on the
leased premises. This insurance is to be carried by one or more insurance
companies authorized to transact business in Texas and approved by Secondary
Sub-Lessor.
Secondary Sub-Lessee agrees to indemnify and hold Secondary Sub-Lessor
harmless from and against all judgments, costs, damages
Page 9
and expenses which may accrue against, be charged to or recovered from Secondary
Sub-Lessor by reason or on account of damage to the property of, injury to or
death of any person, arising from the use and/or occupancy of the leased
premises by Secondary Sub-Lessee, Secondary Sub-Lessee's agents, employees,
contractors and subcontractors, and/or from the use and/or occupancy by
Secondary Sub-Lessee, Secondary Sub-Lessee's agents, employees, contractors, and
subcontractors of any appurtenant facilities or property of Secondary
Sub-Lessor, and/or from the use and/or occupancy by Secondary Sub-Lessee,
Secondary Sub-Lessee's agents, employees, contractors, and subcontractors of any
facilities or property of Secondary Sub-Lessor, provided that Secondary
Sub-Lessor shall give Secondary Sub-Lessee prompt and timely notice of any claim
made or suit instituted which, in any way, affects Secondary Sub-Lessee or his
insurer, and Secondary Sub-Lessee or his insurer shall have the right to
compromise and defend the same to the extent of their own interest; provided,
further, that any failure by Secondary Sub-Lessor to give Secondary Sub-Lessee
the foregoing notice shall not affect the liability of Secondary Sub-Lessee or
his insurer hereunder to Secondary Sub-Lessor if Secondary Sub-Lessee has
received actual timely notice of said claim or suit. Any final judgment rendered
against Secondary Sub-Lessor for any
Page 10
cause for which Secondary Sub-Lessee is liable hereunder shall be conclusive
against Secondary Sub-Lessee as to liability and amount.
INSURANCE CERTIFICATES AND NOTIFICATION OF CANCELLATION
Secondary Sub-Lessee shall furnish Secondary Sub-Lessor with
certificates of all insurance required by this Article. Secondary Sub-Lessee
shall notify Secondary Sub-Lessor at least ten (10) days prior to any
cancellation of any insurance policy required by this Lease.
ARTICLE X. DAMAGE OR DESTRUCTION OF PREMISES
NOTICE TO SECONDARY SUB-LESSOR
If the leased premises, or any structures or improvements on the leased
premises, should be damaged or destroyed by fire, tornado, or other casualty,
Secondary Sub-Lessee shall give immediate written notice of the damage or
destruction to Secondary Sub-Lessor, including a description of the damage and,
as far as known to Secondary Sub-Lessee, the cause of the damage.
DESTRUCTION OF PREMISES
If the structures or improvements on the leased premises should be
totally or partially destroyed by fire, tornado, or other casualty, then the
Secondary Sub-Lessee may elect either to repair or replace the same to the
extent of the insurance proceeds available (in which case the rent payable
hereunder shall be abated
Page 11
until such time as the Secondary Sub-Lessee can reasonably resume operation of
his business, and the term hereof shall be extended for a period equal to the
rent abatement period), or not to repair or replace the same and to terminate
this Secondary Sublease, effective as of the date of written notification as
provided in the preceding paragraph. In the event that Secondary Sub-Lessee
elects to terminate this Secondary Sublease, all property insurance proceeds
shall be allocated between Secondary Sub-Lessor and Secondary Sub-Lessee. The
allocation shall be based upon a yearly proration over a 35 year period (e.g.,
if the casualty occurs in year three(3) of the lease term, Secondary Sub-Lessor
shall receive 3/35 of the proceeds and Secondary Sub-Lessee shall receive 32/35
of the proceeds.
ARTICLE XI. DEFAULT, ESCAPE AND CURE
DEFAULT BY SECONDARY SUB-LESSEE
If Secondary Sub-Lessee shall allow the rent to be in arrears more than
twenty(20)days after written notice of such delinquency, or shall remain in
default under any other condition of this Secondary Sublease for a period of
thirty (30) days after written notice from Secondary Sub-Lessor (provided that,
if such default is not reasonably capable of cure within said 30-day period,
Secondary Sub-Lessee shall not be deemed in default so long as Secondary Sub-
Lessee has commenced to cure the default within said 30-day period and
diligently prosecutes such cure to completion), Secondary Sub- Lessor may at its
option, without further notice to Secondary Sub- Lessee, terminate this
Secondary Sublease or, in the alternative, Secondary Sub-Lessor may, in addition
to any other remedies provided by law, re-enter and take possession of the
premises and remove all persons and property without being deemed guilty in any
manner of trespass and relet the premises, or any part of the premises, for all
or any part of the remainder of the Secondary Sublease term, to a party
satisfactory to Secondary Sub-Lessor and at such monthly rental as Secondary
Sub-Lessor may with reasonable diligence be able to secure.
SECONDARY SUB-LESSOR'S LIEN
It is expressly agreed that, in the event of default by Secondary
Sub-Lessee in the payment of rent or any other sum due from Secondary Sub-Lessee
to Secondary Sub-Lessor under the terms of this Secondary Sublease, Secondary
Sub-Lessor shall have a lien upon all fixtures, chattels, or other property of
any description belonging to Secondary Sub-Lessee that are placed in, or become
a part of, the leased premises as security for rent due and to become due for
the remainder of the current Secondary Sublease term and any other sum due from
Secondary Sub-Lessee to Secondary
Page 12
Sub-Lessor. This lien shall not be in lieu of, or in any way affect, the
statutory landlord's lien given by law but shall be in addition to that lien,
and Secondary Sub-Lessee grants to Secondary Sub-Lessor a security interest in
all of Secondary Sub-Lessee's property placed in or on the leased premises for
purposes of this contractual lien. This shall not prevent the sale by Secondary
Sub-Lessee of any merchandise or property in the ordinary course of business
free of such lien. In the event of default by Secondary Sub-Lessee, and in the
event Secondary Sub-Lessor exercises the option to terminate the leasehold,
re-enter, and relet the premises as provided in the preceding paragraph, then
Secondary Sub-Lessor, after giving reasonable notice to Secondary Sub-Lessee of
the intent to take possession and giving an opportunity for a hearing on the
matter, may take possession of all of Secondary Sub-Lessee's property on the
premises and sell it at public or private sale after giving Secondary Sub-Lessee
reasonable notice of the time and place of any public sale or of the time after
that any private sale is to be made, for cash or on credit, for such prices and
terms as Secondary Sub-Lessor deems best, with or without having the property
present at the sale. The proceeds of the sale shall be applied first to the
necessary and proper expense of removing, storing, and selling such property,
then to the payment of any rent
Page 13
due or to become due under this Secondary Sublease, with the balance, if any, to
be paid to Secondary Sub-Lessee.
DEFAULT BY SECONDARY SUB-LESSOR
If Secondary Sub-Lessor defaults in the performance of any term,
covenant, or condition required to be performed by it under this agreement, and
such default continues for more than thirty(30) days after written notice to
Secondary Sub-Lessor (provided that, if such default is not reasonably capable
of cure within said 30-day period, Secondary Sub-Lessor shall not be deemed in
default so long as Secondary Sub-Lessor has commenced to cure the default within
said 30-day period and diligently prosecutes such cure to completion), Secondary
Sub-Lessee may elect to do either one of the following:
a. Secondary Sub-Lessee may remedy such default by any
necessary action and, in connection with such remedy, may
pay any reasonable expenses and employ counsel. All sums
expended, or obligations incurred, by Secondary Sub-
Lessee in connection with remedying Secondary Sub-
Lessor's default shall be paid by Secondary Sub-Lessor to
Secondary Sub-Lessee on demand and, on failure of such
reimbursement, Secondary Sub-Lessee may, in addition to
any other right or remedy that Secondary Sub-Lessee may
Page 14
have, deduct these costs and expenses from rent subsequently
becoming due under this Secondary Sublease.
b. Secondary Sub-Lessee may terminate this Secondary
Sublease on giving at least sixty (60) days' written
notice to Secondary Sub-Lessor of such intention. In the
event Secondary Sub-Lessee elects this option, this
Secondary Sublease will be terminated on the date
designated in Secondary Sub-Lessee's notice, unless
Secondary Sub-Lessor has cured the default prior to
expiration of the sixty (60) day period.
ESCAPABILITY BY SECONDARY SUB-LESSEE
In the event that Secondary Sub-Lessor exercises its
right to cancel the Operating Agreement (hereinafter defined) as permitted under
Section 4 of the Operating Agreement, Secondary Sub-Lessee shall have the
election, exercisable by written notice to Secondary Sub-Lessor, to terminate
this Secondary Sublease.
CUMULATIVE REMEDIES
All rights and remedies of Secondary Sub-Lessor and Secondary Sub-Lessee
under this Article shall be cumulative, and none shall exclude any other right
or remedy provided by law or by any other provision of this Secondary Sublease.
All such rights and remedies
Page 15
may be exercised and enforced concurrently and whenever, and as
often, as occasion for their exercise arises.
WAIVER OF BREACH
A waiver by either Secondary Sub-Lessor or Secondary Sub-Lessee of a
breach of this Secondary Sublease by the other party does not constitute a
continuing waiver or a waiver of any subsequent breach of the Secondary
Sublease.
ARTICLE XII. INSPECTION BY SECONDARY SUB-LESSOR
Secondary Sub-Lessee shall permit Secondary Sub-Lessor and Secondary
Sub-Lessor's agents, representatives, and employees to enter into and on the
leased premises at all reasonable times, agreed to by Secondary Sub-Lessee in
advance, for the purpose of inspection or any other purpose necessary to protect
Secondary Sub-Lessor's interest in the leased premises or to perform Secondary
Sub-Lessor's duties under this Secondary Sublease. Said inspections shall have
prior approval by management of the facility, to enable management to provide
all security precautions necessary.
ARTICLE XIII. ASSIGNMENT AND LEASE
ASSIGNMENT AND SUBLETTING BY SECONDARY SUB-LESSEE
Secondary Sub-Lessee shall have the right to assign, sublet or
otherwise transfer its rights or obligations under this Secondary
Page 16
Sublease or assign, sublet or otherwise transfer any right or interest in this
Secondary Sublease or in the leased premises or the improvements or personal
property located on the leased premises; provided, however, that Secondary
Sub-Lessee must first have obtained the written consent of the Secondary
Sub-Lessor, which consent shall not be unreasonably withheld. Notwithstanding
the foregoing, Secondary Sub-Lessee may, without Secondary Sub- Lessor's
consent, secure financing or general credit lines, and as security therefor,
Secondary Sub-Lessee shall have the right to grant a leasehold mortgage in this
Secondary Sublease and enter into such other leasehold mortgage loan documents
as may be requested by its lenders. Upon Secondary Sub-Lessee providing notice
of such financing to Secondary Sub-Lessor, Secondary Sub- Lessor agrees that (i)
except as otherwise provided in this Lease, there shall be no cancellation or
surrender of this Secondary Sublease by joint action of Secondary Sub-Lessor and
Secondary Sub- Lessee without the prior consent in writing of the holder of such
leasehold mortgage, (ii) Secondary Sub-Lessor shall give the holder of such
leasehold mortgage concurrent notice of any defaults by Secondary Sub-Lessee,
and allow such holder the same period to remedy or cause to be remedied such
defaults, but such holder shall have no obligation to cure the same, (iii) the
holder of such
Page 17
leasehold mortgage may be added to the "loss payee" endorsement of any and all
insurance policies carried by Secondary Sub-Lessee, and (iv) if the holder of
such leasehold mortgage (or any affiliate of such holder) succeeds to the
interest of Secondary Sub-Lessee, whether by foreclosure or otherwise, Secondary
Sub-Lessor shall recognize such holder (or affiliate) as the secondary
sub-lessee under this Secondary Sublease and continue to be bound by the terms
hereof on the condition that such holder (or affiliate) shall cure all
outstanding defaults of Secondary Sub-Lessee of which holder has been made aware
by notice as provided herein and such holder attorns to Secondary Sub-Lessor.
ASSIGNMENT AND SUBLETTING BY SECONDARY SUB-LESSOR
Secondary Sub-Lessor may not assign, encumber or otherwise
transfer its rights or obligations under this Secondary Sublease or any right or
interest in this Secondary Sublease or in the leased premises or the
improvements or personal property located on the leased premises, without the
prior written consent of Secondary Sub-Lessee, which consent shall not be
unreasonably withheld. Any assignment of this Secondary Sublease by Sub-Lessor
must be concurrent with an assignment by Sub-Lessor of all of its interest under
the Base Lease and the Amended Sublease (as hereinafter defined).
Page 18
ARTICLE XIV. CONDEMNATION
If during the term of this Secondary Sublease or any extension thereof,
all or any part of the leased premises shall be taken for any public or
quasi-public use under any governmental law, ordinance, or regulation, or by
right of eminent domain, or should be sold to the condemning authority under
threat of condemnation, Secondary Sub-Lessee may terminate this Secondary
Sublease by giving written notice to Secondary Sub-Lessor within thirty (30)
days after possession of the condemned portion is taken by the entity exercising
the power of condemnation. In the event that Secondary Sub-Lessee does not or
fails to exercise its right to terminate this Secondary Sublease, Secondary
Sub-Lessee shall to the extent of available condemnation proceeds restore and
rebuild the building and other improvements situated on the leased premises to
make them reasonably tenantable and suitable for the uses for which the premises
are leased (in which case the rent payable hereunder shall be abated until such
time as the Secondary Sub- Lessee can reasonably resume operation of its
business, and the term hereof shall be extended for a period equal to the rent
abatement period). Any excess proceeds shall be allocated between Secondary
Sub-Lessor and Secondary Sub-Lessee in the same manner as provided in the last
sentence of this paragraph. If after partial
Page 19
condemnation, this Secondary Sublease is not terminated, the fixed rent payable
under Article II of this Secondary Sublease shall be adjusted equitably for the
then remaining term of this Secondary Sublease. In the event that Secondary
Sub-Lessee exercises its right to terminate this Secondary Sub-Lease, all
condemnation proceeds shall be allocated between Secondary Sub-Lessor and
Secondary Sub-Lessee. The allocation shall be based on a yearly proration over a
35 year period (e.g., if the condemnation occurs in year three (3) of the lease
term, Secondary Sub-Lessor shall receive 3/35 of the proceeds and Secondary
Sub-Lessee shall receive 32/35 of the proceeds).
CONDEMNATION BY SECONDARY SUB-LESSOR
Secondary Sub-Lessor agrees that it will not condemn any portion of the
leased premises during any term of this Secondary Sublease.
ARTICLE XVI. MISCELLANEOUS
PERSONAL PROPERTY
All personal property located on the premises or used in connection with
the ongoing correctional facility operated thereon shall become the property of
Secondary Sub-Lessor at the expiration or earlier termination of this lease.
Page 20
TAXES
Although the parties believe that the leased premises are not subject to
ad valorem taxation or property taxes, the parties have agreed that should the
property be determined to be subject to ad valorem or property taxes, any and
all ad valorem or property taxes on the leased premises or the improvements or
personal property located thereon shall be the sole responsibility of Secondary
Sub-Lessor, and shall be paid by Secondary Sub-Lessor; provided, however, that
Secondary Sub-Lessee shall be responsible for ad valorem taxes with respect to
all replacement personal property added to the leased premises by Secondary
Sub-Lessee pursuant to Section 4 of this Secondary Sublease.
NOTICES AND ADDRESSES
All notices required under this Secondary Sublease must be given by
certified mail, return receipt requested, addressed to the proper party, at the
following addresses:
Page 21
Secondary Sub-Lessor:
City Manager
City of Big Spring, Texas
310 Nolan
Big Spring, TX 79720
Secondary Sub-Lessee:
Ed Davenport
c/o Midtex Detentions, Inc.
ATTENTION: Johnny Rutherford
610 Main, Suite A
Big Spring, TX 79720
Either party may change the address to which notices are to be sent it by giving
the other party notice of the new address in the manner provided in this
section. Additionally, Secondary Sub-Lessor agrees to provide a copy of any
notice to Secondary Sub-Lessee to any mortgagee of Secondary Sub-Lessee for
which it has been provided an address and Secondary Sub-Lessor agrees that any
such mortgagee shall be afforded the same rights to cure any default of
Secondary Sub-Lessee as are available to Secondary Sub-Lessee under this
Secondary Sublease.
PRIOR AGREEMENTS SUPERSEDED
This agreement constitutes the sole and only Secondary Sublease of the
parties relating to the leased premises and supersedes any prior understandings
or written or oral agreements between the parties respecting this Secondary
Sublease.
Page 22
AMENDMENT
No amendment, modification, or alteration of the terms of this agreement
shall be binding unless it is in writing, dated subsequent to the date of this
agreement, and duly executed by the parties to this agreement.
RIGHTS AND REMEDIES CUMULATIVE
The rights and remedies provided by this Secondary Sublease are
cumulative, and the use of any one right or remedy by either party shall not
preclude or waive that party's right to use any or all other remedies. The
rights and remedies provided in this Secondary Sublease are in addition to any
other rights the parties may have by law, statute, ordinance, or otherwise.
ATTORNEY'S FEES AND COSTS
If, as a result of a breach of this agreement by either party, the other
party employs an attorney or attorneys to enforce its/his rights under this
Secondary Sublease, then the breaching or defaulting party agrees to pay the
other party the reasonable attorney's fees and costs incurred to enforce the
Secondary Sublease.
FORCE MAJEURE
Neither Secondary Sub-Lessor nor Secondary Sub-Lessee shall be required
to perform any term, condition, or covenant in this
Page 23
Secondary Sublease so long as such performance is delayed or prevented by force
majeure, which shall mean acts of God, material or labor restrictions by any
governmental authority, civil riot, floods, and any other cause not within the
control of Secondary Sub-Lessor or Secondary Sub-Lessee and which by the
exercise of due diligence Secondary Sub-Lessor or Secondary Sub-Lessee is
unable, wholly or in part, to prevent or overcome.
TIME OF ESSENCE
Time is of the essence of this agreement.
JOINDER OF SECONDARY SUB-LESSOR AS LESSOR UNDER THE BASE LEASE AND SUB-LESSEE
UNDER THE AMENDED SUBLEASE
The leased premises covered by this Secondary Sublease are also subject
to the following existing lease agreements:
1. Industrial Park Lease Agreement dated the 7th day of
August, 1990, between the City of Big Spring, Texas, as
Lessor, and Ed Davenport, as Lessee, a copy of which is
attached hereto as Exhibit "C";
2. Industrial Park Lease Agreement Addendum dated the 26th day of
November, 1990, between the City of Big Spring, Texas, as Lessor,
and Ed Davenport, as Lessee, a copy of which is attached hereto
as Exhibit "D" (the Industrial
Page 24
Park Lease Agreement and Industrial Park Lease Agreement Addendum
are collectively called the "Base Lease"); and
3. Amended Sublease Agreement, Airpark Unit, dated the 1st day of
July, 1996, between Ed Davenport, as Sub-Lessor, and the City of
Big Spring, Texas, as Sub-Lessee, a copy of which is attached
hereto as Exhibit "E"(the "Amended Sublease").
Secondary Sub-Lessor recognizes and agrees that certain conflicts or
inconsistencies may exist between this Secondary Sublease and the Base Lease and
between this Secondary Sublease and the Amended Sublease, including without
limitation, variations in the manner in which insurance or condemnation proceeds
shall be paid, variations in the notice and curative provisions and variations
in the approvals required for alterations, additions or improvements to the
leased premises. By its execution of this Secondary Sublease, Secondary
Sub-Lessor (in its capacity as Lessor under the Base Lease and Sub-Lessee under
the Amended Sublease) hereby consents to the terms of the Secondary Sublease and
agrees that in the event of any such conflicts the Secondary Sublease shall
control.
Page 25
CROSS-DEFAULT
Concurrent with the execution of this Secondary Sublease, (i)
Secondary Sub-Lessor and Secondary Sub-Lessee have entered the Amended
Sublease,(ii)Secondary Sub-Lessee has assigned its interest in this Secondary
Sublease, the Amended Sublease and the Base Lease to Cornell Corrections of
Texas, Inc. (ACornell@) and (ii) Secondary Sub-Lessor and Cornell have entered
into an Operating Agreement (the AOperating Agreement") wherein Secondary
Sub-Lessor has engaged Cornell to operate the correctional facility located on
the leased premises. Secondary Sub-Lessor and Secondary Sub-Lessee hereby agree
that a default by Secondary Sub-Lessor under the Base Lease, the Amended
Sublease or the Operating Agreement shall constitute a default by Secondary
Sub-Lessor under this Secondary Sublease, and following notice and the
expiration of any curative rights specified in the Operating Agreement, the
Amended Sublease or the Base Lease, as the case may be, Secondary Sub-Lessee
shall have the right to terminate this Secondary Sublease by delivering written
notice of termination to Secondary Sub-Lessor.
Page 26
The undersigned Secondary Sub-Lessor and Secondary Sub-Lessee execute
this agreement as of the 1st day of July, 1996, at Houston, Harris County,
Texas.
Secondary Sub-Lessor:
CITY OF BIG SPRING, TEXAS
BY:/s/ TIM BLACKSHEAR
------------------
Tim Blackshear, Mayor
City of Big Spring, Texas
310 Nolan
Big Spring, TX 79720
ATTEST:
/s/ TOM FERGUSON
- ----------------
Tom Ferguson, City Secretary
Secondary Sub-Lessee:
/s/ ED DAVENPORT
--------------------
Ed Davenport
Page 27
THE STATE OF TEXAS ss.
COUNTY OF HOWARD ss.
This instrument was acknowledged before me on the 9th day of July, 1996,
by TIM BLACKSHEAR as Mayor of the CITY OF BIG SPRING, TEXAS.
/s/ CHARLOTTE POE
--------------------
Notary Public, State of Texas
THE STATE OF TEXAS ss.
COUNTY OF HARRIS ss.
This instrument was acknowledged before me on the 9th day of July, 1996,
by ED DAVENPORT.
/s/ CHARLOTTE POE
--------------------
Notary Public, State of Texas
Page 28
EXHIBIT "A"
Attached to Secondary Sublease Agreement by
and between the City of Big Spring, Texas,
Secondary Sub-Lessor, and Ed Davenport,
Secondary Sub-Lessee
[Legal description of leased premises]
DESCRIPTION OMITTED
EXHIBIT "B"
Attached to Secondary Sublease Agreement by
and between the City of Big Spring, Texas,
Secondary Sub-Lessor, and Ed Davenport,
Secondary Sub-Lessee
This Exhibit includes the personal property located at all three
Big Spring Correctional Center ("BSCC") facilities -- Interstate, Airpark and
Flightline. Only a portion of this personal property is located at the facility
that is the subject of this lease agreement, but when taken in conjunction with
the lease agreements on the two other BSCC facilities, represents all of the
personal property used in connection with the BSCC.
LIST OMITTED
EXHIBIT "C"
Attached to Secondary Sublease Agreement by
and between the City of Big Spring, Texas,
Secondary Sub-Lessor, and Ed Davenport,
Secondary Sub-Lessee
[Industrial Park Lease Agreement dated 11/26/90]
INDUSTRIAL PARK LEASE AGREEMENT
STATE OF TEXAS ss.
KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF HOWARD ss.
THAT this Agreement is made and entered into by and between the City of
Big Spring, a municipal corporation of the State of Texas (hereinafter referred
to as the "Lessor") and, Ed Davenport (hereinafter referred to as the "Lessee"),
WITNESSETH: For and in consideration of the mutual covenants in this Agreement
contained, Lessor has leased, demised and rented unto Lessee the following
described real property;
(See Exhibit "A" attached hereto and hereby incorporated by
reference.)
ARTICLE 1. TERM
This Agreement is to be for a term of fifty (50) years commencing on the
8TH day of AUGUST, 1990, and expiring on the 7TH day of AUGUST, 2040.
ARTICLE 2. RENT
Lessee shall pay to Lessor at Lessor's address hereinafter stated in the
City of Big Spring, Howard County, Texas the sum of ONE HUNDRED DOLLARS
($100.00) representing the entire rental payment due from the date of execution
of this Lease through the 31st day of December, 1990. Thereafter, Lessee shall
pay Lessor, monthly in advance, the sum of ONE THOUSAND DOLLARS ($1,000.00)
during the remaining term of this Lease. The first such monthly rental payment
shall be due on or before the lst day of January, 1991. The parties agree that
should the sublease agreement between the parties, covering the same property,
simultaneously executed with this base
lease, ever be terminated, or should Lessor herein escape from that sublease as
provided therein, the monthly rental due hereunder shall reduce to ONE DOLLAR
($1.00) per month for the remaining term of this lease.
ARTICLE 3. DEPOSIT
In addition to the initial rental payment called for in the preceding
paragraph, Lessee shall deposit with Lessor the sum of ONE HUNDRED DOLLARS
($100.00) which deposit shall be retained by Lessor during the Lease term, and
upon termination of the Lease, returned to Lessee less and except any moneys
then due and owing to Lessor by Lessee under the terms of this Lease, including
any costs of restoring the premises to the condition called for under the terms
hereof, as well as any other indebtednesses caused or charges owing by Lessee to
Lessor or to any third parties.
ARTICLE 4. UTILITIES
Lessee shall pay all utility charges, including but not limited to water
service, gas service, electrical service, sewer service, trash service,
telephone service, and cable television service, resulting from Lessee's use of
the demised premises.
ARTICLE 5. PEACEFUL POSSESSION
Lessee may peacefully have, hold and enjoy the demised premises subject
to the terms and conditions herein provided Lessee abides by the covenants,
terms and conditions herein contained.
ARTICLE 6. MAINTENANCE
Lessee agrees at his own cost and expense to maintain the Leased
premises in good order and condition and upon termination of this Agreement to
return said premises in good order and condition. Lessor shall be entitled from
time to time to inspect the premises and to point out any deficiencies in
Lessee, maintenance of same. Lessee agrees to promptly repair and restore said
premises to remedy those deficiencies in a reasonable and prompt manner. Lessee
acknowledges
that its signing of this Lease constitutes a conclusive admission that Lessee
has inspected the leased premises and has found them in good condition and
repair. Lessee also agrees to maintain the leased premises in a safe, clean,
well-kept and orderly condition. Further, Lessee shall, to Lessor's reasonable
satisfaction, keep said premises free from refuse and tall grass or weeds.
ARTICLE 7. INSURANCE
Lessee, at its own cost shall secure and maintain fire and extended
coverage insurance upon all buildings and all leasehold improvements now or
hereafter situated on the demised premises in an amount equal to the full
insurable value of said buildings and improvements. Lessee, at its own expense,
also shall secure and maintain in force during the term of this Lease liability
and property damage insurance in the minimum amount of $300,000.00. All
insurance policies shall contain loss payable endorsements in favor of the
parties as their respective interests may appear hereunder. Lessee shall furnish
Lessor certificate evidencing said insurance coverage within ten (10) days of
the date of executing this Lease and said insurance coverage shall not be
canceled or reduced without at least thirty (30) days prior written notice to
Lessor. At least ten (10) days prior to the expiration of any such policy, the
Lessee shall file with Lessor a certificate showing that such insurance coverage
has been renewed. If such insurance coverage is canceled or reduced, Lessee
shall within five (5) days after receipt of written notice from Lessor of such
cancellation or reduction in coverage, file with Lessor a certificate showing
that the required insurance has been reinstated or provided through another
insurance company or companies approved in writing by Lessor.
ARTICLE 8. INDEMNITY
Lessee agrees to indemnify and hold lessor harmless from and against all
judgments, costs, damages and expenses which may accrue against, be charged to
or recovered from Lessor by reason or on account of damage to the property of,
injury to or death of any person, arising from the use
and/or occupancy of the demised premises by Lessee, Lessee's agents, contractors
and subcontractors, and/or from the use and/or occupancy by Lessee, Lessee's
agents, contractors, and subcontractors of any appurtenant facilities or
property of Lessor, and/or from the use and/or occupancy by Lessee, Lessee's
agents, contractors, and subcontractors of any facilities or property of lessor,
including but not limited to use of the railroad track and/or railroad siding of
Lessor by Lessee, Lessee's agents, contractors and subcontractors in connection
with shipments made to Lessee; provided that Lessor shall give Lessee prompt and
timely notice of any claim made or suit instituted which, in any way, affects
Lessee or its insurer, and Lessee or its insurer shall have the right to
compromise and defend the same to the extent of their own interest; provided,
further, that any failure by Lessor to give Lessee the foregoing notice shall
not affect the liability of Lessee or its insurer hereunder to Lessor if Lessee
has received actual timely notice of said claim or suit. Any final judgment
rendered against Lessor for any cause for which Lessee is liable hereunder shall
be conclusive against Lessee as to liability and amount.
Hazardous Waste
Lessor agrees to indemnify and hold Lessee harmless from any and all
judgments, costs, damages and expenses which may accrue against, be charged to
or recovered from Lessee by reason or on account of any buried hazardous waste
which exists under the demised premises at the time this Lease is executed.
ARTICLE 9. ALTERATIONS
Lessee accepts the demised premises "as is" and may make alterations to
the said premises as required to construct Big Spring Correctional Center II
according to the plans and specifications agreed to by the parties, at Lessee's
sole cost and expense. Any other alterations must be authorized in writing by
Lessor. Alterations requiring but made without the written consent of Lessor
shall be
removed at the option of and in a manner acceptable to Lessor in order to return
the premises to reasonably the same condition and state as same were in prior to
the making of such alterations.
Any alterations, physical additions, or other improvements understood
that this clause shall not apply to movable fixtures, manufacturing equipment,
machines, furniture, service equipment or any trade fixtures of Lessee which
shall remain Lessee's property. Lessee agrees that any damages as may be cause
by the installation or removal of movable fixtures, manufacturing equipment and
machines, furniture, service equipment or any trade fixtures will be repaired
forthwith and expeditiously by Lessee at Lessee's sole expense.
ARTICLE 10. LAWS AND REGULATIONS
Lessee will comply with all laws, ordinances, orders, rules and
regulations enacted or promulgated by any federal, state, municipal or other
agency or public authority having jurisdiction with respect to the use,
condition or occupancy of the demised premises.
ARTICLE 11. NONDISCRIMINATION COVENANT
The Lessee, in exercising any of the rights or privileges herein granted
to him, shall not on the grounds of race, color, or national origin discriminate
or permit discrimination against any person or group of persons in any manner
prohibited by Part 21 of the Regulations of the Secretary of Transportation
issued under the provision of Title VI of the Civil Rights Act of 1964. The
Lessor is hereby granted the right to take such action, anything to the contrary
herein notwithstanding, as the United States may direct to enforce this
nondiscrimination covenant.
ARTICLE 12. DAMAGE OR DESTRUCTION TO LEASED PREMISES
If the leased premises, or any part thereof (including any leasehold
improvements), shall be damaged or destroyed, the Lessee shall, to the extent of
the insurance proceeds available promptly repair or replace the same, and any
insurance proceeds received with respect to such damage or
destruction shall be applied in payment of the expenses of such repair or
replacement, and any excess insurance proceeds shall belong to Lessee. In
repairing or replacing the leased premises pursuant to this provision, Lessee
agrees to first have the plans and specifications for such repair or replacement
approved by the Lessor and to obtain any and all performance and payment bonds
and building permits as are required by Lessor. Lessee shall warrant unto the
Lessor that all items and materials used in altering, repairing or replacing the
demised premises are, at the time of installation, free and clear of any liens,
mortgages or encumbrances, and shall indemnify and save the Lessor harmless from
and against any and all claims with respect thereto.
If such a substantial portion of the demised premises is destroyed so
that the Lessee cannot reasonably continue to utilize said premises to support
its responsibilities to customers until the same are repaired or replaced, then
the Lessee may elect either to repair or replace the same to the extent of the
insurance proceeds available (in which case the rent payable hereunder shall be
abated until such time as the Lessee can reasonably resume operation of its
business, and the term hereof shall be extended for a period equal to the rent
abatement period), or not to repair or replace the same and to terminate this
Agreement, whereupon the full amount of all insurance proceeds shall be paid to
the Lessee. If this Lease terminates under this provision, Lessee shall clean up
the premises, removing all debris and non-functional portions of the premises,
so as to leave it in reasonably clean condition.
ARTICLE 13. CONDEMNATION
If any part of the demised premises shall be taken or condemned for a
public or quasi-public use, and a part thereof remains which in the judgment of
the Lessee is adequate to support a normal business operations hereunder, the
rent payable hereunder shall be reduced, commencing with the date title shall
vest in condemnor, to the amount determined by multiplying such rent by a
fraction,
the numerator of which is the area of the demised premises remaining after the
condemnation, and the denominator of which is the area of the demised premises
as of the date of condemnation. If Lessee determines that the said remaining
portion of the demised premises is inadequate for the uses contemplated
hereunder, Lessee shall have the option to terminate this Agreement as of the
date when title to the part so condemned vest in condemnor. If all the demised
premises shall be so taken, this Agreement shall terminate on the date when
title to the demised premises vest in condemnor. If a part of all of the demised
premises be so taken or condemned, the Lessee shall be entitled to that portion
of any award expressly stated to have been made to it for loss of business, loss
of its furniture and fixtures, cost of removing its property and loss of the
value of its leasehold interest in the land so taken. In the event of such
taking, the City shall receive such portion of the award as is attributable to
its reversionary fee interest in the land and improvements comprising the
demised premises. Any portion of any condemnation award which is not
specifically apportioned to the Lessee, as aforesaid, shall belong to the
Lessor. Lessor agrees that the City of Big Spring will not initiate condemnation
proceedings for any part of the demised premises.
ARTICLE 14. SUBLEASE; ASSIGNMENT
Lessee shall have the unrestricted right to assign its rights under this
lease to anyone, including, but not limited to, Commercial National Bank of
Brady, Texas.
ARTICLE 15. TAXES
Any and all ad valorem or property taxes on the leased premises or the
improvements or personal property to be located thereon in conjunction with the
properties' use as a Correctional Center shall be the responsibility of Lessor,
and shall be paid by Lessor, but only for the initial ten (10) years of the term
of this lease. Thereafter, Lessee shall be responsible for and pay any and all
lawfully assessed ad valorem or property taxes.
ARTICLE 16. DEFAULT
Events of Default
16.01 The following events shall be deemed to be events of default by
Lessee under this Lease:
a. Lessee shall fail to pay any installment of the rent hereby
reserved and such failure shall continue for a period of thirty (30) days after
written notice thereof to Lessee.
b. Lessee shall fail to comply with any term, provision, or
covenant of this Lease, other than the payment of rent, and shall not cure such
failure within thirty (30) days after written notice thereof to Lessee.
Remedies
16.02 Upon the occurrence of any event of default specified in Section
16.01 hereof, Lessor shall have the option to pursue any one or more of the
following remedies;
a. Terminate this Lease in which event Lessee shall immediately
surrender the premises to Lessor, and if Lessee fails to do so, Lessor may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession and expel or remove Lessee
and any other person who may be occupying said premises or any part thereof, by
force if necessary, without being liable for prosecution or any claim of damages
therefore; and Lessee agrees to pay to Lessor on demand the amount of all loss
and damages which Lessor may suffer by reason of such termination, whether
through inability to relet the premises on satisfactory terms or otherwise.
b. Enter upon and take possession of the premises and expel or
remove Lessee and any other person who may be occupying the premises or any part
thereof, by force if necessary, without being liable for prosecution or any
claim for damages therefor, and if Lessor so elects, relet
the premises on such terms as Lessor shall deem advisable and receive the rent
thereof; and Lessee agrees to pay to Lessor on demand any deficiency that may
arise by reason of such re-letting.
c. Enter upon the premises by force if necessary, without being
liable for prosecution or any claim for damages therefore, and do whatever
Lessee is obligated to do under the terms of this Lease; and Lessee agrees to
reimburse Lessor on demand for any expenses which Lessor may incur in thus
effecting compliance with Lessee's obligations under this Lease, and Lessee
further agrees that Lessor shall not be liable for any damages resulting to
Lessee from such action.
No re-entry or taking possession of the premises by Lessor shall be
construed as an election on its part to terminate this Lease, unless written
notice of such intention be given to Lessee. Notwithstanding any such reletting
or re-entry or taking possession, Lessor may at any time thereafter elect to
terminate this Lease for a previous default. Pursuit of any of the foregoing
remedies shall not preclude pursuit of any of the other remedies herein provided
or any other remedies provided by law, nor shall pursuit of any remedy herein
provided constitute a forfeiture or waiver of any rent due to Lessor hereunder
or of any damages accruing to Lessor by reason of the violation of any of the
terms, provisions, and covenants herein contained. Lessor's acceptance of rent
following an event of default hereunder shall not be construed as Lessor's
waiver of such event of default. No waiver by lessor of any violation or breach
of any of the terms, provisions, and covenants herein contained shall be deemed
or construed to constitute a waiver of any other violation or breach of any of
the terms, provisions, and covenants therein contained. Forbearance by Lessor to
enforce one or more of the remedies herein provided upon an event of default
shall not be deemed or construed to constitute a waiver of such default. The
loss or damage that Lessor may suffer by reason of termination of this Lease or
the deficiency from any reletting as provided for above shall include the
expense of repossession and any repairs or remodeling undertaken by Lessor
following
possession. Should Lessor at any time terminate this Lease for any default, in
addition to any other remedy Lessor may have, Lessor may recover from Lessee all
damages Lessor may incur by reason of such default, including cost of recovering
the premises and the worth at the time of such termination of the excess, if
any, of the amount of rent and charges equivalent to rent reserved in this Lease
for the remainder of the stated term over the then reasonable rental value of
the premises for the remainder of said term, all of which amounts shall be
immediately payable from Lessee to Lessor.
Surrender of Premises
16.03 No act or thing done by the Lessor or its agents during the term
hereby granted shall be deemed an acceptance of a surrender of the premises, and
no agreement to accept a surrender of the premises shall be valid unless the
same be made in writing and subscribed by Lessor.
Lessor's Lien
16.04 In addition to the statutory Lessor's lien, Lessor shall have, at
all times, a valid security interest to secure payment of all rentals and other
sums of money becoming due hereunder from Lessee, and to secure payment of any
damages or loss which Lessor may suffer by reason of the breach by Lessee of any
covenant, agreement, or condition contained herein, upon all goods, wares,
equipment, fixtures, furniture, improvements, and other personal property of
Lessee presently or which may hereafter be situated on the premises, and all
proceeds therefrom, and such property shall not be removed therefrom without the
consent of Lessor until all arrearages in rent as well as any and all other sums
of money then due to Lessor hereunder shall first have been paid and discharged
and all the covenants, agreements, and conditions hereof have been fully
complied with and performed by Lessee. The foregoing shall not prevent the sale
by Lessee of any merchandise in the ordinary course of business free of said
security interest of Lessor. Upon the occurrence of
an event of default by Lessee, Lessor may, in addition to any other remedies
provided herein, after giving reasonable notice of the intent to take possession
and giving an opportunity for a hearing thereon, enter upon the premises and
take possession of any and all goods, wares, equipment, fixtures, furniture,
improvements and other personal property of Lessee situated on the premises,
without liability for trespass or conversion, and sell the same at public or
private sale, with or without having such property at the sale, after giving
Lessee reasonable notice of the time and place of any public sale or of the time
after which any private sale is to be made, at which sale the Lessor of its
assigns may purchase unless otherwise prohibited by law. Unless otherwise
provided by law, and without intending to exclude any other manner of giving
Lessee reasonable notice, the requirement of reasonable notice shall be met if
such notice is given at least five (5) days before the time of sale. The
proceeds from any such disposition, less any and all expenses connected with the
taking of possession, holding, and selling of the property (including reasonable
attorneys' fees and other expenses), shall be applied as a credit against the
indebtedness secured by the security interest granted in this section. Any
surplus shall be paid to Lessee or as otherwise required by law; and the Lessee
shall pay any deficiencies forthwith. Upon request by Lessor, Lessee agrees to
execute and deliver to Lessor a financing statement in form sufficient to
perfect the security interest of Lessor in the aforementioned property and
proceeds thereof under the provisions of the Uniform Commercial code in force in
the State of Texas. The statutory lien for rent is not hereby waived, the
security interest herein granted being in addition and supplementary thereto.
ARTICLE 17. HOLDING OVER
Should Lessee, or any of its successors in interest, hold over the
premises, or any part thereof, after the expiration of the term of this Lease,
unless otherwise agreed in writing, such holding over shall constitute and be
construed as tenancy from month to month only, at a rental equal to the rent
payable for the last month of the term of this Lease plus fifty percent (50%) of
such amount. The inclusion of the preceding sentence shall not be construed as
Lessor's consent for Lessee to hold over.
ARTICLE 18. TERMINATION BY LESSEE
Lessee shall have the right to terminate this Agreement in its entirety
by giving ten (10) days written notice to the Lessor of such termination upon or
after the happening of one or more of the following events:
(1) If any court of competent jurisdiction shall issue an
injunction, order or decree preventing or restraining the use by Lessee of all
or a substantial part of the leased premises.
(2) If the Lessor shall default in fulfilling any of the
terms, covenants or conditions to be fulfilled by it hereunder and shall fail to
remedy said default within thirty (30) days following receipt by Lessor of
written demand from Lessee to do so, or if by reason of the nature of such
default the same cannot be remedied within thirty (30) days, then Lessee shall
have the right to terminate this Agreement if the Lessor shall have failed to
commence the remedying of such default within said thirty (30) days following
such written demand or having so commenced, shall fail thereafter to continue
with diligence the remedying thereof.
(3) If the Lessee exercises the termination rights set
forth in the sections hereof entitled "Damage or Destruction to Leased Premises"
and "Condemnation".
Prior to the exercise of the right to terminate, rent shall be abated
during the period Lessee is unable to perform its normal business activities.
ARTICLE 19. NON-WAIVER OF RIGHTS
Continued performance by either party hereto pursuant to the terms of
the Agreement after a default of any of the terms, covenants and conditions
herein shall not be deemed a waiver of any right to terminate this Agreement for
any subsequent default and no waiver of any such default shall be construed or
act as a waiver of any subsequent default.
ARTICLE 20. ATTORNEYS' FEES
In the event of any court action between Lessor and Lessee or a sublease
to enforce any of the provisions or rights hereof, the prevailing party shall be
entitled to recover from the other all costs and expenses, including reasonable
attorneys' fees in such amount as the court may determine.
ARTICLE 21. APPLICABLE LAW
This Agreement shall be construed in accordance with the laws of the
State of Texas. If any covenant, condition or provision contained in this
Agreement is held to be invalid by any Court of competent jurisdiction such
invalidity shall not affect the validity of any other covenant, condition or
provision herein contained.
ARTICLE 22. NOTICES
Notwithstanding anything in this Agreement to the contrary any notices
or demands pursuant to the terms of this Agreement shall be in writing and shall
be deemed served and received when delivered personally, or when deposited in
the United States mail, postage prepaid, return receipt requested by certified
mail addressed to Lessor at:
City of Big Spring
P. 0. Box 3190
Big Spring, Texas 79721-3190
or Lessee at:
Ed Davenport
P. 0. Box 907
Brady, Texas 76825
ARTICLE 23. ENTIRE AGREEMENT
This Agreement, together with exhibits attached hereto constitutes the
entire Agreement between the parties hereto with respect to the subject matter
hereof, and any representations or statements heretofore made with respect to
such subject matter, whether verbal or written, are merged herein.
ARTICLE 24. CONFLICTS OF PROVISIONS
The parties acknowledge that they are simultaneously entering into a
Sublease Agreement covering the same property, wherein the Lessor herein is the
Sub-lessee and the Lessee herein is the Sub-lessor. During the entire period
when both this Lease Agreement and the Sublease Agreement are in full force and
effect, any conflicts between the terms and provisions of this Lease Agreement
and the Sublease Agreement shall be controlled by the provisions in the Sublease
Agreement. The potential conflicts include repairs and maintenance, utility
charges, garbage removal, alterations, additions and improvements, signs,
insurance and indemnity, damages or destruction of premises, and taxes. If the
Sublease Agreement is terminated for any reason, then the provisions in this
Lease Agreement regarding those conflicts shall become operable and in full
force and effect so long as this Lease Agreement is in effect.
IN WITNESS WHEREOF, the parties hereto have executed these presents in
duplicate originals this 7TH day of AUGUST, 1990. LESSOR: THE CITY OF BIG SPRING
BY:
----------------------
MAXWELL D. GREEN, MAYOR
ATTEST:
- ----------------------------------
THOMAS D. FERGUSON, CITY SECRETARY
LESSEE:
BY:
----------------------
ATTEST:
REVISED
AUGUST 22, 1990
BIG SPRING CORRECTIONAL CENTER II
DESCRIPTION
BEING a 14.688 Acre Tract of land out of Sections 2 and 11, Block 33,
T-1-S, T.&P. RR. Co. Survey, Howard County, Texas, Big Spring Airport,
(formerly Webb Air Force Base), and more particularly described by metes
and bounds as follows:
BEGINNING at a 3/4" G.I.P. back of curb, Wright Avenue, Big Spring
Airport, in Section 2, Block 33, T-1-S, T.&P. RR. Co. Survey for the SE
Corner of this tract; from whence a 2" G.I.P., the SE Corner of Section
2 and the SW Corner of Section 1, bears S 14(degree)31|59" E. 76.13" and
N 75(degree)15|29" E, 2494.47|
THENCE S 77(degree)49|06" W, with the back of curb, Wright Avenue,
317.55| to a 3/4" G.I.P. for a point of angle in the South line of this
tract
THENCE S 70(degree)06|50" W 156.87| to a 3/4" G.I.P., back of curb,
Wright Avenue, for a point of angle in the South line of this tract
THENCE S 53(degree)31"05" W with the back of curb, Wright Avenue, at
205.87| cross the South line of Section 2 and North line of Section 3,
1131.62| in all to a 120d spike set in pavement. Wright Avenue, for the
SW Corner of this tract
THENCE N 36(degree)34|42" W, 267.77| to a 120d nail set in pavement of
parking lot for the NW Corner of this tract
THENCE N 53(degree)31|05" E at 251.68| cross the North line of Section 3
and the South line of Section 2. 434.27| in all to a 3/4" G.I.P. back of
curb, on West side of Second Street for an interior corner (angle) in
the North line of this tract
THENCE N 36(degree)28|17" W, with back of West curb, Second Street.
222.66| to a 3/4" G.I.P. for an exterior corner (angle) In the North
line of this tract
THENCE N 53(degree)32|03" E, 321.82| to a 120d spike in pavement, East
side of Third Street, for an exterior corner (angle) in the North line
of this tract
THENCE S 36(degree)26|58" E, 190.48| to a 120d spike in pavement, North
line of Avenue E, for an interior corner (angle) in the North line of
this tract
THENCE N 53(degree)18|58" E, 452.21| to a 120d nail in pavement West
side of Fourth Street for an interior corner (angle) in the North line
of this tract
THENCE N 36(degree)25|54" W. 36.05 to a 3/4" G.I.P., West side of Fourth
Street, for an exterior corner (angle) in the North line of this tract
THENCE N 53(degree)34|54" E, with back of curb, North side of Avenue E,
544.46| to a 3/4" G.I.P. for the NE corner of this tract
THENCE S 43(degree)41|37" E, 208.65| to a 3/4" G.I.P., for a point of
angle in the East line of this tract
THENCE S 02(degree)20|18" E, 369.001 to the place of beginning
Containing 14.688 Acres
Registered Professional Land Surveyor
EXHIBIT "D"
Attached to Secondary Sublease Agreement by
and between the City of Big Spring, Texas,
Secondary Sub-Lessor, and Ed Davenport,
Secondary Sub-Lessee
[Industrial Park Lease Agreement Addendum dated 11/26/90]
INDUSTRIAL PARK LEASE AGREEMENT
ADDENDUM
STATE OF TEXAS ss.
KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF HOWARD ss.
That the agreement made and entered into by and between the City of Big
Spring, a Municipal Corporation of the State of Texas, and Ed Davenport, on the
7th day of August, 1990 is hereby amended as follows:
ARTICLE 1. Term
This agreement is to be for a term of forty (40) years commencing on the
8th of August, 1990 and expiring on the 7th day of August, 2030.
ARTICLE 2. Rent
Article 2. Rent, shall be changed as follows:
Paragraph 1, 6th line through the remainder of the paragraph is changed
to read:
Monthly in advance, the sum of Fifty Dollars ($50.00) per acre for the
land described in Exhibit A of this lease and One and One Half Cents ($.015) per
square foot for the building #350. On the 5th anniversary and subsequent 5th
year anniversaries the monthly rate shall be increased by the percentage equal
to one (1%) percent per point of increase in the Dallas, Texas Region Consumer
Price Index based on the United States Average published by the Bureau of Labor
Statistics, U.S. Department of Labor, at the time of the anniversary over the
Consumer Price Index for United States Average as published by the Bureau of
Labor Statistics, U.S. Department of Labor at the effective date of this Lease
Agreement. The first such payment shall be due on or before the first (1st) day
of January, 1991.
ARTICLE 9. Alteration
Paragraph 3 added: Any alteration, physical additions or other
improvements made to upon or within the properties descried in Exhibit 1 shall
upon termination or expiration of this lease for any reason or no reason revert
to the City of Big Spring McMahon/Wrinkle Air Park.
ARTICLE 11. Nondiscrimination Covenant
The lessee for himself, his personal representative, successors in
interest, and assigns, as a part of the consideration hereof, does hereby
covenant and agrees as a covenant running with the land that: (1) no person on
the grounds of race, color, or national origin shall be excluded from
participation in, denied the benefits of, or be otherwise subjected to
discrimination in the use of said facilities; (2) that in the construction of
any improvements on, over, or under such land and the furnishing of services
thereon, no person on the grounds of race, color, or national origin shall be
excluded from participation in, denied the benefits of, or otherwise be
subjected to discrimination; (3) that the lessee shall use the premises in
compliance with all other requirements imposed by or pursuant to 49 CFR Part 21,
Nondiscrimination in Federally Assisted Programs of the Department of
Transportation, and as said regulations may be amended.
That in the event of breach of any of the preceding nondiscrimination
covenants, the City Council of the City of Big Spring shall have the right to
terminate the license, lease, permit, etc., and to reenter and repossess said
land and the facilities thereon, and hold the same as if said lease had never
been made or issued.
ARTICLE 25. Option to Purchase Improvements
Article 25. Option to Purchase Improvements is ADDED to read:
At any time after the first five (5) years of this lease, through the
30th day after the expiration of the twelfth (12th) year of this lease, lessor
shall have the option to purchase all buildings and improvements located on the
leased premises upon the terms and conditions set forth in the Sales Contract
attached hereto as Exhibit "B". The purchase price to be paid by lessor,
depending on the year within which the option is exercised, shall be as follows:
DATE PURCHASE PRICE
---- --------------
During the Sixth Year $ 5,052,272.00
During the Seventh Year 4,616,992.00
During the Eighth Year 4,111,740.00
During the Ninth Year 3,525,265.00
During the Tenth Year 2,844,513.00
During the Eleventh Year 2,054,326.00
During the Twelfth Year 1,137,113.00
For 30 Days After the Expiration
of the Twelfth Year of this Lease 100,000.00
Upon lessor exercising its rights under this option provision, the
sub-lease agreement to the City of Big Spring from Ed Davenport dated the 7TH
day of AUGUST , 1990 covering the leased premises for an original term of forty
(40) years, and this lease agreement shall immediately terminate along with all
rights, duties and obligations of all parties under both this base lease
agreement and the sublease agreement.
IN WITNESS WHEREOF, the parties hereto have executed these presents in
duplicate originals this 26 day of NOVEMBER , 1990.
LESSOR: THE CITY OF BIG SPRING
BY:
----------------------
MAXWELL D. GREEN, Mayor
ATTEST:
- ----------------------------------
THOMAS D. FERGUSON, City Secretary
LESSEE:
BY:
----------------------
ATTEST:
- ----------------------------------
EXHIBIT "E"
Attached to Secondary Sublease Agreement by
and between the City of Big Spring, Texas,
Secondary Sub-Lessor, and Ed Davenport,
Secondary Sub-Lessee
[Amended Sublease Agreement, Airpark Unit, dated 7/1/96]
AMENDED SUBLEASE AGREEMENT
AIRPARK UNIT
This Amended Sublease is made and entered into by and between Ed
Davenport of McCulloch County, Texas, referred to in this Amended Sublease as
Sub-Lessor, and the City of Big Spring, Texas, a municipal corporation, referred
to in this Sublease as Sub-Lessee.
In consideration of the mutual covenants and agreements set forth in
this Amended Sublease, and other good and valuable consideration, Sub-Lessor
demises and leases to Sub-Lessee, and Sub-Lessee leases from Sub-Lessor, the
14.688 acre tract of real property situated on Big Spring McMahon-Wrinkle
Airpark property in Big Spring, Howard County, Texas, including any and all
improvements located thereon, said real property more particularly described in
Exhibit "A" attached to this Amended Sublease. These premises are referred to in
this Amended Sublease as "the premises" or "the leased premises."
ARTICLE I. TERM
TERM OF AMENDED SUBLEASE
The term of this Amended Sublease shall begin on the date of execution
hereof, and end on the 7th day of August, 2030, unless sooner terminated as
provided in this Amended Sublease.
HOLDOVER
If Sub-Lessee holds over and continues in possession of the leased
premises after expiration of the term of this Amended Sublease or any extension
of that term, other than as provided in the preceding paragraph, Sub-Lessee will
be deemed to be occupying the premises on the basis of a month-to-month tenancy,
subject to all of the terms and conditions of this Amended Sublease.
ARTICLE II. RENT
FIXED RENT
During the term of this Amended Sublease, Sub-Lessee agrees to pay
Sub-Lessor the sum of ONE DOLLAR ($1.00) per year on or before the first day of
June, each year, as fixed rental for each succeeding year during the entire term
of this Amended Sublease; provided that, if the Secondary Sublease (as
hereinafter defined) between Sub-Lessor and Sub-Lessee should terminate for any
reason, the fixed rental payable hereunder shall increase to the same amount of
rental as is payable by Sub-Lessor under the Base Lease (as hereinafter
defined).
Sub-Lessee agrees to pay all rent to Sub-Lessor at Sub-Lessor's office,
located at 610 Main Street, Big Spring, TX 79720, or at such other location or
locations as Sub-Lessor shall from time to time designate by written notice to
Sublessee.
ARTICLE III. USE OF PREMISES
PERMITTED USE
Sub-Lessee may use the premises to operate and conduct a correctional or
detention facility. Sub-Lessee may not use the premises for any other purpose
without the written consent of Sub- Lessor.
WASTE, NUISANCE, OR ILLEGAL USES
Sub-Lessee shall not use, or permit the use of, the premises in any
manner that results in waste of the premises or constitutes a nuisance or
violates any statute, ordinance, rule, or regulation applicable to the premises
or for any illegal purpose.
ARTICLE IV. REPAIRS AND MAINTENANCE
REPAIRS AND MAINTENANCE BY SUB-LESSEE
Sub-Lessee shall, throughout the term of this Amended Sublease and any
extensions of that term, at its own expense and risk, maintain the leased
premises and all improvements on the leased premises in good order and
condition, including but not limited to making all repairs and replacements
necessary to keep the premises and improvements in such condition, normal wear
and tear excepted.
ARTICLE V. UTILITIES
UTILITY CHARGES
Sub-Lessee shall pay all utility charges, including but not limited to,
water, electricity, heat, gas, and telephone service, used in and about the
leased premises during the term of the Amended Sublease, all such charges to be
paid by Sub-Lessee directly to the utility company or municipality furnishing
the same, before the same shall become delinquent.
GARBAGE REMOVAL
Sub-Lessee shall pay for the removal of all garbage and rubbish from the
leased premises during the term of the Amended Sublease.
ARTICLE VI. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS
NO CONSENT OF SUB-LESSOR
Sub-Lessee shall have the right without Sub-Lessor's consent to make, at
Sub-Lessee's sole cost and expense, any alterations, additions or improvements
to the leased premises. Sub-Lessee shall obtain all approvals required for any
alterations, additions or improvements made by Sub-Lessee to the leased
premises, including approvals of FAA as required by the Indenture between the
United States of America and the City of Big Spring, Texas, dated October 6,
1978.
PROPERTY OF SUB-LESSOR
All alterations, additions, or improvements made by Sub-Lessee shall
become the property of Sub-Lessor at the termination of this Amended Sublease,
and Sub-Lessee shall have no obligation to remove such alterations, additions or
improvements unless they were made in violation of the preceding paragraph.
ARTICLE VII. SIGNS
Sub-Lessee shall have the right to erect signs on any portion of the
leased premises, including, but not limited to, the exterior walls of the
premises, subject to applicable laws, ordinances, and regulations. Sub-Lessee
must remove all signs at the termination of this Amended Sublease and repair any
damage resulting from the erection or removal of the signs.
ARTICLE VIII. MECHANIC'S LIEN
Sub-Lessee will not cause any mechanic's lien or liens to be placed upon
the leased premises or improvements on the premises. If such a mechanic's lien
is filed on the leased premises, Sub- Lessee will promptly pay the lien;
provided that Sub-Lessee shall have the right to contest in good faith and with
reasonable diligence the validity of any such lien or claimed lien if Sub-
Lessee shall post the appropriate bond or give to Sub-Lessor such security as
may be deemed reasonably satisfactory to Sub-Lessor to insure payment thereof
(and to prevent any sale, foreclosure, or forfeiture of the leased premises by
reason of non-payment thereof)
and provided further, that on final determination of the lien or claim for lien,
Sub-Lessee shall immediately pay any judgment rendered, with all proper costs
and charges, and shall have the lien released and the judgment satisfied.
ARTICLE IX. INSURANCE AND INDEMNITY
PROPERTY INSURANCE
Sub-Lessee shall, at its own expense, during the term of this Amended
Sublease, keep all buildings and improvements on the leased premises and all
personal property used in connection with the operation of the leased premises
insured against loss or damage by fire or theft, with extended coverage to
include direct loss by windstorm, hail, explosion, riot, or riot attending a
strike, civil commotion, aircraft, vehicles, and smoke, in the aggregate amount
of not less than 100% of replacement value.
LIABILITY INSURANCE AND INDEMNITY
Sub-Lessee, at its own expense, shall provide and maintain in force
during the term of this Amended Sublease, primary and excess liability insurance
coverage with limits in the amount of FIVE MILLION DOLLARS ($5,000,000.00),
covering and naming both Sub- Lessor and Sub-Lessee as insureds, for any
liability for property damage or personal injury arising as a result of
Sub-Lessee's occupation of and operation on the leased premises. This insurance
is to be carried by one or more insurance companies authorized to transact
business in Texas and approved by Sub-Lessor.
Sub-Lessee agrees to indemnify and hold Sub-Lessor harmless from and
against all judgments, costs, damages and expenses which may accrue against, be
charged to or recovered from Sub-Lessor by reason or on account of damage to the
property of, injury to or death of any person, arising from the use and/or
occupancy of the leased premises by Sub-Lessee, Sub-Lessee's agents, contractors
and subcontractors, and/or from the use and/or occupancy by Sub-Lessee,
Sub-Lessee's agents, contractors, and subcontractors of any appurtenant
facilities or property of Sub-Lessor, and/or from the use and/or occupancy by
Sub-Lessee, Sub-Lessee's agents, contractors, and subcontractors of any
facilities or property of Sub-Lessor, including but not limited to use of the
railroad track and/or railroad siding of Sub-Lessor by Sub-Lessee, Sub-Lessee's
agents, contractors and subcontractors in connection with shipments made to
Sub-Lessee; provided that Sub-Lessor shall give Sub-Lessee prompt and timely
notice of any claim made or suit instituted which, in any way, affects
Sub-Lessee or its insurer, and Sub-Lessee or its insurer shall have the right to
compromise and defend the same to the extent of their own interest; provided,
further, that any failure by Sub-Lessor to give Sub-Lessee the foregoing notice
shall not affect the liability of Sub-Lessee or its insurer hereunder to
Sub-Lessor if Sub-Lessee has received actual timely notice of said claim or
suit. Any final judgment rendered against Sub-Lessor for any cause for which
Sub-Lessee is
liable hereunder shall be conclusive against Sub-Lessee as to
liability and amount.
INSURANCE CERTIFICATES AND NOTIFICATION OF CANCELLATION
Sub-Lessee shall furnish Sub-Lessor with certificates of all
insurance required by this Article. Sub-Lessee shall notify Sub- Lessor at least
ten (10) days prior to any cancellation of any insurance policy required by this
Sublease.
WAIVER OF INSURANCE REQUIREMENTS
So long as the Secondary Sublease between Sub-Lessor and Sub- Lessee
remains in effect, Sub-Lessor hereby waives Sub-Lessee's obligation to carry the
insurance specified in this Article IX.
ARTICLE X. DAMAGE OR DESTRUCTION OF PREMISES
NOTICE TO SUB-LESSOR
If the leased premises, or any structures or improvements on the leased
premises, should be damaged or destroyed by fire, tornado, or other casualty,
Sub-Lessee shall give immediate written notice of the damage or destruction to
Sub-Lessor, including a description of the damage and, as far as known to
Sub-Lessee, the cause of the damage.
DESTRUCTION OF PREMISES
If the building on the leased premises should be totally or partially
destroyed by fire, tornado, or other casualty, then the Sub-Lessee may elect
either to repair or replace the same to the extent of the insurance proceeds
available (in which case the rent
payable hereunder shall be abated until such time as the Sub-Lessee can
reasonably resume operation of its business, and the term hereof shall be
extended for a period equal to the rent abatement period), or not to repair or
replace the same and to terminate this Amended Sublease, effective as of the
date of written notification as provided in the preceding paragraph. In the
event that Sub- Lessee elects to terminate this Amended Sublease, all property
insurance proceeds shall be allocated between Sub-Lessor and Sub- Lessee. The
allocation shall be based on a yearly proration over a 35 year period (e.g., if
the casualty occurs in year three (3)of the lease term, Sub-Lessor will receive
3/35 of the proceeds and Sub-Lessee will receive 32/35 of the proceeds).
ARTICLE XI. DEFAULT
DEFAULT BY SUB-LESSEE
If Sub-Lessee shall allow the rent to be in arrears more than twenty
(20) days after written notice of such delinquency, or shall remain in default
under any other condition of this Amended Sublease for a period of thirty (30)
days after written notice from Sub-Lessor (provided that, if such default is not
reasonably capable of cure within said 30-day period, Sub-Lessee shall not be
deemed in default so long as Sub-Lessee has commenced to cure the default within
said 30-day period and diligently prosecutes such cure to completion),
Sub-Lessor may at its option, without further notice to Sub-Lessee, terminate
this Amended Sublease or, in the
alternative, Sub-Lessor may, in addition to any other remedies provided by law,
re-enter and take possession of the leased premises and remove all persons and
property without being deemed guilty in any manner of trespass and relet the
leased premises, or any part of the leased premises, for all or any part of the
remainder of the Amended Sublease term, to a party satisfactory to Sub-Lessor
and at such monthly rental as Sub-Lessor may with reasonable diligence be able
to secure.
SUB-LESSOR'S LIEN
It is expressly agreed that, in the event of default by Sub-Lessee in
the payment of rent or any other sum due from Sub-Lessee to Sub-Lessor under the
terms of this Amended Sublease, Sub-Lessor shall have a lien upon all fixtures,
chattels, or other property of any description belonging to Sub-Lessee that are
placed in, or become a part of, the leased premises as security for rent due and
to become due for the remainder of the current Amended Sublease term and any
other sum due from Sub-Lessee to Sub-Lessor. This lien shall not be in lieu of,
or in any way affect, the statutory landlord's lien given by law but shall be in
addition to that lien, and Sub-Lessee grants to Sub-Lessor a security interest
in all of Sub-Lessee's property placed in or on the leased premises for purposes
of this contractual lien. This shall not prevent the sale by Sub-Lessee of any
merchandise or property in the ordinary course of business free of such lien. In
the event of default by
Sub-Lessee, and in the event Sub-Lessor exercises the option to terminate the
leasehold, re-enter, and relet the premises as provided in the preceding
paragraph, then Sub-Lessor, after giving reasonable notice to Sub-Lessee of the
intent to take possession and giving an opportunity for a hearing on the matter,
may take possession of all of Sub-Lessee's property on the premises and sell it
at public or private sale after giving Sublessee reasonable notice of the time
and place of any public sale or of the time after that any private sale is to be
made, for cash or on credit, for such prices and terms as Sub-Lessor deems best,
with or without having the property present at the sale. The proceeds of the
sale shall be applied first to the necessary and proper expense of removing,
storing, and selling such property, then to the payment of any rent due or to
become due under this Amended Sublease, with the balance, if any, to be paid to
Sublessee.
DEFAULT BY SUB-LESSOR
If Sub-Lessor defaults in the performance of any term, covenant, or
condition required to be performed by it under this agreement, and such default
continues for more than thirty(30) days after written notice to Sub-Lessor
(provided that, if such default is not reasonably capable of cure within said
30-day period, Sub- Lessor shall not be deemed in default so long as Sub-Lessor
has commenced to cure the default within said 30-day period and
diligently prosecutes such cure to completion), Sub-Lessee may
elect to do either one of the following:
a. Sub-Lessee may remedy such default by any necessary
action and, in connection with such remedy, may pay any
reasonable expenses and employ counsel. All sums
expended, or obligations incurred, by Sublessee in
connection with remedying Sub-Lessor's default shall be
paid by Sub-Lessor to Sub-Lessee on demand and, on
failure of such reimbursement, Sublessee may, in addition
to any other right or remedy that Sub-Lessee may have,
deduct these costs and expenses from rent subsequently
becoming due under this Amended Sublease.
b. Sub-Lessee may terminate this Amended Sublease on giving at least
sixty (60) days' written notice to Sub-Lessor of such intention.
In the event Sub-Lessee elects this option, the Amended Sublease
will be terminated on the date designated in Sub-Lessee's notice,
unless Sub-Lessor has cured the default prior to expiration of
the sixty (60) day period.
CUMULATIVE REMEDIES
All rights and remedies of Sub-Lessor and Sub-Lessee under this Article
shall be cumulative, and none shall exclude any other right or remedy provided
by law or by any other provision of this Amended Sublease. All such rights and
remedies may be exercised
and enforced concurrently and whenever, and as often, as occasion
for their exercise arises.
WAIVER OF BREACH
A waiver by either Sub-Lessor or Sub-Lessee of a breach of this Amended
Sublease by the other party does not constitute a continuing waiver or a waiver
of any subsequent breach of the Amended Sublease.
ARTICLE XII. INSPECTION BY SUB-LESSOR
Sub-Lessee shall permit Sub-Lessor and Sub-Lessor's agents,
representatives, and employees to enter into and on the leased premises at all
reasonable times, agreed to by Sub-Lessee in advance, for the purpose of
inspection or any other purpose necessary to protect Sub-Lessor's interest in
the leased premises or to perform Sub-Lessor's duties under this Amended
Sublease. Said inspections shall have prior approval by management of the
facility, to enable management to provide all security precautions necessary.
ARTICLE XIII. ASSIGNMENT AND SUBLEASE
ASSIGNMENT AND SUBLETTING BY SUB-LESSEE
Sub-Lessee may sublet, assign, encumber, or otherwise transfer
this Amended Sublease, or any right or interest in this Amended Sublease or in
the leased premises or the improvements on the leased premises, without the
prior written consent of Sub-Lessor. Any assignment of this Amended Sublease by
Sub-Lessee must be
concurrent with an assignment by Sub-Lessee of all of its interest under the
Base Lease and Secondary Sublease (as hereinafter defined).
ASSIGNMENT AND SUBLETTING BY SUB-LESSOR
Sub-Lessor shall have the right to assign its rights under
this Amended Sublease to anyone; provided, however, that Sub-Lessor must first
have obtained the written consent of the Sub-Lessee, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, Sub-Lessor may, without
Sub-Lessee's consent, secure financing or general lines of credit, and as
security thereof, Sub- Lessor shall have the right encumber its interest in this
Lease and enter into such leasehold mortgage loan documents as may be requested
by its lenders.
ARTICLE XIV. CONDEMNATION
If during the term of this Amended Sublease or any extension thereof,
all or any part of the leased premises shall be taken for any public or
quasi-public use under any governmental law, ordinance or regulation, or by
right of eminent domain, or should be sold to the condemning authority under
threat of condemnation, Sub-Lessee may terminate this Amended Sublease by giving
written notice to Lessor within thirty (30) days after possession of the
condemned portion is taken by the entity exercising the power of condemnation.
In the event that Sub-Lessee does not or fails to exercise its right to
terminate this Amended Sublease, Sub-Lessee
shall (to the extent of available condemnation proceeds) restore and rebuild the
building and other improvements situated on the leased premises to make them
reasonably tenantable for the uses for which they are leased (in which case the
rent payable hereunder shall be abated until such time as the Sub-Lessee can
reasonably resume operation of its business, and the term hereof shall be
extended for a period equal to the rent abatement period). Any excess proceeds
shall be allocated between Sub-Lessor and Sub- Lessee in the same manner as
provided in the last sentence of this paragraph. In the event that Sub-Lessee
exercises its right to terminate this Amended Sub-Lease, all condemnation
proceeds shall be allocated between Sub-Lessor and Sub-Lessee. The allocation
shall be based on a yearly proration over a 35 year period (e.g., if the
condemnation occurs in year three (3) of the lease term, Sub-Lessor shall
receive 3/35 of the proceeds and Sub-Lessee shall receive 32/35 of the
proceeds).
ARTICLE XV. MISCELLANEOUS
TAXES
Any and all ad valorem or property taxes on the leased premises or the
improvements or personal property located thereon shall be the responsibility of
Sub-Lessee, and shall be paid by Sub-Lessee.
ESCAPE CLAUSE
***(DELETED)***
NOTICES AND ADDRESSES
All notices required under this Amended Sublease must be given by
Certified Mail, Return Receipt Requested, addressed to the proper party, at the
following addresses:
Sub-Lessor:
Ed Davenport
c/o Midtex Detentions, Inc.
ATTENTION: Johnny Rutherford
610 Main Street, Suite A
Big Spring, TX 79720
Sub-Lessee:
City of Big Spring, Texas
310 Nolan Street
Big Spring, TX 79720
ATTN: Mayor
Either party may change the address to which notices are to be sent it by giving
the other party notice of the new address in the manner provided in this
section. Additionally, Sub-Lessee agrees to provide a copy of any notice to
Sub-Lessor to any mortgagee of Sub-Lessor for which it has been provided an
address and Sub-Lessee agrees that any such mortgagee shall be afforded the same
rights to cure any default of Sub-Lessor as are available to Sub-Lessor under
this Amended Sublease.
OPTION TO PURCHASE IMPROVEMENTS
***(DELETED)***
AMENDMENT
No amendment, modification, or alteration of the terms of this agreement
shall be binding unless it is in writing, dated subsequent to the date of this
agreement, and duly executed by the parties to this agreement.
RIGHTS AND REMEDIES CUMULATIVE
The rights and remedies provided by this Amended Sublease agreement are
cumulative, and the use of any one right or remedy by either party shall not
preclude or waive that party's right to use any or all other remedies. The
rights and remedies provided in this Amended Sublease are in addition to any
other rights the parties may have by law, statute, ordinance, or otherwise.
ATTORNEY'S FEES AND COSTS
If, as a result of a breach of this agreement by either party, the other
party employs an attorney or attorneys to enforce its rights under this Amended
Sublease, then the breaching or defaulting party agrees to pay the other party
the reasonable attorney's fees and costs incurred to enforce the Amended
Sublease.
FORCE MAJEURE
Neither Sub-Lessor nor Sub-Lessee shall be required to perform any term,
condition, or covenant in this Amended Sublease so long as such performance is
delayed or prevented by force majeure, which
shall mean acts of God, material or labor restrictions by any governmental
authority, civil riot, floods, and any other cause not within the control of
Sub-Lessor or Sub-Lessee and which by the exercise of due diligence Sub-Lessor
or Sub-Lessee is unable, wholly or in part, to prevent or overcome.
TIME OF ESSENCE
Time is of the essence of this agreement.
PRIOR AGREEMENTS SUPERSEDED
This agreement amends, modifies and supersedes, from and after the
execution hereof, the Sublease Agreement with Option to Purchase Improvements,
covering the leased premises, dated the 7th day of August, 1990, between Ed
Davenport, Sub-Lessor, and the City of Big Spring, Texas, Sub-Lessee and the
Addendum to Sublease Agreement with Option to Purchase Improvements, covering
the leased premises, dated the 26th day of November, 1990, between Ed Davenport,
Sub-Lessor, and the City of Big Spring, Texas, Sub- Lessee.
CROSS-DEFAULT
Concurrent with the execution of this Amended Sublease, (i)
Sub-Lessor and Sub-Lessee have entered a Secondary Sublease covering the leased
premises (the "Secondary Sublease"), (ii)Sub- Lessor has assigned its interest
in this Amended Sublease, the Secondary Sublease and the Base Lease (defined
below) to Cornell Corrections of Texas, Inc. ("Cornell") and (iii)Sub-Lessee and
Cornell have entered into an Operating Agreement (the "Operating Agreement"),
wherein Sub-Lessee has engaged Cornell to operate the correctional facility
located on the leased premises. Sub-Lessor and Sub-Lessee hereby agree that a
default by Sub-Lessee under the Base Lease, the Secondary Sublease or the
Operating Agreement shall constitute a default by Sub-Lessee under this Amended
Sublease, and following notice and the expiration of any curative rights
specified in the Operating Agreement, the Secondary Sublease or the Base Lease,
as the case may be, Sub-Lessor shall have the right to terminate this Amended
Sublease by delivering written notice of 21 termination to Sub-Lessee. "Base
Lease" refers to that certain Industrial Park Lease Agreement dated the 7th day
of August, 1990, between Sub-Lessee and Sub-Lessor and the Addendum thereto
dated the 26th day of November, 1990.
The undersigned Sub-Lessor and Sub-Lessee execute this Amended Sublease
Agreement as of the 1st day of July, 1996, at __________, ____________ County,
Texas.
Sub-Lessor:
-----------------------------------
ED DAVENPORT
Sub-Lessee:
THE CITY OF BIG SPRING, TEXAS,
BY:________________________________
Tim Blackshear, Mayor
ATTEST:
- -------------------------------
Tom Ferguson, City Secretary
THE STATE OF TEXAS ss.
COUNTY OF ___________ ss.
This instrument was acknowledged before me on the ______ day of
_______________________, 1996, by ED DAVENPORT.
-----------------------------------
Notary Public, State of Texas
THE STATE OF TEXAS ss.
COUNTY OF ________ ss.
This instrument was acknowledged before me on the ______ day of
_______________________, 1996, by TIM BLACKSHEAR as Mayor of the CITY OF BIG
SPRING, TEXAS.
-----------------------------------
Notary Public, State of Texas
EXHIBIT "A"
Attached to Amended Sublease Agreement between Ed
Davenport, Sub-Lessor, and The City of Big Spring, Texas,
Sub-Lessee
[Legal Description]
ASSIGNMENT AND ASSUMPTION OF LEASES
THIS ASSIGNMENT AND ASSUMPTION OF LEASES (this "Assignment") is
made this 1st day of July, 1996, from ED DAVENPORT ("Assignor") to CORNELL
CORRECTIONS OF TEXAS, INC., a Delaware corporation ("Assignee"), as follows:
RECITALS
A. Assignor is a party to those certain real estate leases
(collectively, the "Leases") between Assignor and The City of
Big Spring (the "City") listed below:
(1) Lease Agreement by and between the City, as Lessor, and
Assignor, as Lessee, dated July 1, 1996
(2) Industrial Park Lease Agreement by and between the City,
as Lessor, and Assignor, as Lessee, dated August 7,
1990, as amended by Addendum, dated November 26, 1990
(3) Amended Sublease Agreement by and between Assignor, as
Sub-Lessor, and the City, as Sub-Lessee, dated July 1,
1996
(4) Secondary Sublease Agreement by and between the City, as
Secondary Sub-Lessor, and Assignor, as Secondary
Sub-Lessee, dated July 1, 1996
(5) Lease by and between the City, as Lessor, and Assignor,
as Lessee, dated February 18, 1994, as amended by Lease
Amendment, dated as of October 1, 1994
(6) Amended Sublease Agreement by and between Assignor, as
Sub-Lessor, and the City, as Sub-Lessee, dated July 1,
1996
(7) Secondary Sublease Agreement by and between the City, as
Secondary Sub-Lessor, and Assignor, as Secondary
Sub-Lessee, dated July 1, 1996
B. Assignor desires to assign all of its right, title and interest
in each of the Leases to Assignee.
C. Assignee desires to assume the Assignor's obligations under each
of the Leases.
AGREEMENT
Now, therefore, for and in consideration of Ten Dollars ($10.00)
and other good and valuable consideration, in hand paid by Assignee to Assignor,
the receipt and sufficiency of which are hereby acknowledged and confessed,
effective as of the date hereof, Assignor hereby assigns to Assignee all right,
title and interest Assignor may have in and to the Leases. From and after the
date hereof, Assignee hereby agrees to be bound by all the terms and provisions
of the Leases and hereby assumes and agrees to pay and perform all obligations
of Assignor under the Leases. Assignee agrees to indemnify, defend and save
harmless Assignor from any and all claims and losses accruing from and after the
date hereof with respect to the Leases.
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment and Assumption of Leases as of the date set forth above.
ASSIGNOR:
ED DAVENPORT
/s/ ED DAVENPORT
--------------------
ASSIGNEE:
CORNELL CORRECTIONS OF TEXAS, INC.
By /s/ DAVID M. CORNELL
--------------------
David M. Cornell,
President
JOINDER
The City of Big Spring (the "City") hereby executes this joinder
to acknowledge the City's release of Assignor from any and all liability
pursuant to the Leases.
Dated as of July 9, 1996.
THE CITY OF BIG SPRING
By /s/ TIM BLACKSHEAR
--------------------
Tim Blackshear, Mayor
City of Big Spring, Texas
Attest:
/s/ TOM FURGUSON
- ----------------------------
Tom Ferguson, City Secretary
EXHIBIT 10.21
SECONDARY SUBLEASE AGREEMENT
FLIGHTLINE UNIT
This Secondary Sublease is made and entered into by and between the City
of Big Spring, Texas, a municipal corporation, referred to in this Secondary
Sublease as Secondary Sub-Lessor, and Ed Davenport, of McCulloch County, Texas,
referred to in this Secondary Sublease as Secondary Sub-Lessee.
In consideration of the mutual covenants and agreements set forth in
this Secondary Sublease, and other good and valuable consideration, Secondary
Sub-Lessor demises and leases to Secondary Sub-Lessee, and Secondary Sub-Lessee
leases from Secondary Sub-Lessor, the real property situated on a 22.798 acre
tract of land out of the W/2 of Section 3, Block 33, T-1-S, T & P Ry. Co.
Survey, Howard County, Texas, Big Spring Airport (formerly Webb Air Force Base),
said tract being more particularly described by metes and bounds on Exhibit "A"
attached hereto, and any and all improvements and personal property located on
the premises or used in connection with the ongoing correctional facility
operated thereon, said personal property more fully described on Exhibit "B"
attached to this Secondary Sublease. These premises are referred to in this
Secondary Sublease as "the premises" or "the leased premises."
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ARTICLE I. TERM
TERM OF LEASE
The term of this Secondary Sublease shall begin upon execution and end
on the 14th day of February, 2019, unless sooner terminated or extended as
provided in this Secondary Sublease.
Provided that Secondary Sub-Lessee is not in default beyond the
expiration of any applicable cure periods, Secondary Sub-Lessee shall have the
right and option to extend the term of this Secondary Sublease for three (3)
successive periods of five (5) years, the first such extended term to commence
on the day following the expiration of the initial term, and each additional
extended term to commence on the day following the expiration of the immediately
preceding extended term. Secondary Sub-Lessee shall exercise its option to
extend the term by giving Secondary Sub-Lessor at least thirty (30)days' written
notice prior to the expiration of the initial term, in the case of the first
option to extend, or the extended term, in the case of successive options to
extend. Each extended term shall be on the same terms, conditions and covenants
that were in effect during the initial term or during the preceding extended
term (as applicable).
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HOLDOVER
If Secondary Sub-Lessee holds over and continues in possession of the
leased premises after expiration of the term of this Secondary Sublease or any
extension of that term, other than as provided in the preceding paragraph,
Secondary Sub-Lessee will be deemed to be occupying the premises on the basis of
a month-to-month tenancy, subject to all of the terms and conditions of this
Secondary Sublease.
ARTICLE II. RENT
FIXED RENT
During the term of this Secondary Sublease, Secondary Sub Lessee agrees
to pay to Secondary Sub-Lessor the sum of SEVENTY-TWO THOUSAND AND 00/100
DOLLARS($72,000.00) per year payable in monthly installments of SIX THOUSAND AND
00/100 DOLLARS ($6,000.00) on or before the first day of each month, beginning
the first day of June, 1996, as fixed rental for each succeeding month during
such period. This fixed rent will increase on each fifth (5th) anniversary of
this Secondary Sublease, by one percent (1%) for each point of increase in the
Consumer Price Index based on the United States average published by the Bureau
of Labor Statistics, U.S. Department of Labor, at the effective date of this
Secondary Sublease. Such increase shall become effective immediately upon
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notice by Secondary Sub-Lessor of the adjusted fixed rent amount. Secondary
Sub-Lessee agrees to pay this fixed rent to Secondary Sub-Lessor at Secondary
Sub-Lessor's office, located at 310 Nolan, Big Spring, Texas or at such other
location or locations as Secondary Sub-Lessor shall from time to time designate
by written notice to Secondary Sub-Lessee.
If in any two consecutive 30-day billing cycles the average inmate
population provided by the Federal Bureau of Prisons or other applicable
governmental authority for the correctional facility operated on the leased
premises is 60% or less of the maximum authorized capacity for the facility,
fixed rent payable hereunder shall be reduced by 40% until the next 30-day
billing cycle when the average inmate population is restored to a level of at
least 60% of maximum authorized capacity. If in any two consecutive 30-day
billing cycles the average inmate population provided by the Federal Bureau of
Prisons or other applicable governmental authority for the correctional facility
operated on the leased premises is 25% or less of the maximum authorized
capacity for the facility, fixed rent payable hereunder shall be eliminated
until the next 30-day billing cycle when the average inmate population is
restored to a level of at least 25% of maximum authorized capacity.
Notwithstanding the foregoing, the period of
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abatement under the two preceding sentences shall not exceed thirty-six (36)
months in the aggregate.
ARTICLE III. USE OF PREMISES
PERMITTED USE
Secondary Sub-Lessee may use the premises to operate and conduct a
correctional or detention facility. Secondary Sub-Lessee may not use the
premises for any other purpose without the written consent of Secondary
Sub-Lessor.
WASTE, NUISANCE, OR ILLEGAL USES
Secondary Sub-Lessee shall not use, or permit the use of, the premises
in any manner that results in waste of the premises or constitutes a nuisance or
violates any statute, ordinance, rule, or regulation applicable to the premises
or for any illegal purpose.
ARTICLE IV. REPAIRS AND MAINTENANCE
REPAIRS AND MAINTENANCE BY SECONDARY SUB-LESSEE
Secondary Sub-Lessee shall, throughout the term of this Secondary
Sublease and any extensions of that term, at his own expense and risk, maintain
the leased premises and all improvements on the leased premises in good order
and condition, including but not limited to making all repairs and replacements
necessary to keep the premises and improvements in such condition, normal wear
and tear excepted, and to repair and replace all personal property
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described in Exhibit "B" as reasonably required to continue Secondary
Sub-Lessee's operations on the premises.
ARTICLE V. UTILITIES
UTILITY CHARGES
Secondary Sub-Lessee shall pay all utility charges, including but not
limited to water, electricity, heat, gas, and telephone service, used in and
about the leased premises during the term of this Secondary Sublease, all such
charges to be paid by Secondary Sub-Lessee directly to the utility company or
municipality furnishing the same, before the same shall become delinquent.
GARBAGE REMOVAL
Secondary Sub-Lessee shall pay for the removal of all garbage and
rubbish from the leased premises during the term of the Secondary Sublease.
ARTICLE VI. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS
CONSENT OF SECONDARY SUB-LESSOR
Secondary Sub-Lessee shall have the right, at Secondary Sub- Lessee's
sole cost and expense, any alterations, additions, or improvements to the leased
premises. Secondary Sub-Lessee shall promptly notify Secondary Sub-Lessor of any
such mandated alterations, additions or improvements. Secondary Sub-Lessee shall
not make any alterations, additions or improvements to the leased
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premises without the prior written consent of Secondary Sub-Lessor, which
consent shall not be unreasonably withheld or delayed. Secondary Sub-Lessee
shall obtain all approvals required for any alterations, additions or
improvements made by Secondary Sub-Lessee to the leased premises, including
approvals of FAA as required by the Indenture between the United States of
America and the City of Big Spring, Texas, dated October 6, 1978.
PROPERTY OF SECONDARY SUB-LESSOR
All alterations, additions, or improvements made by Secondary Sub-Lessee
and all personal property used in connection with the operation of the leased
premises shall become the property of Secondary Sub-Lessor at the termination of
this Secondary Sublease, and Secondary Sub-Lessee shall have no obligation to
remove such alterations, additions, improvements or personal property unless
they were made or installed in violation of the preceding paragraph.
ARTICLE VII. SIGNS
Secondary Sub-Lessee shall have the right to erect signs on any portion
of the leased premises, including, but not limited to, the exterior walls of the
premises, subject to applicable laws, ordinances, and regulations. Secondary
Sub-Lessee must remove all
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signs at the termination of this Secondary Sublease and repair any damage
resulting from the erection or removal of the signs.
ARTICLE VIII. MECHANIC'S LIEN
Secondary Sub-Lessee will not cause any mechanic's lien or liens to be
placed upon the leased premises or improvements on the premises. If such a
mechanic's lien is filed on the leased premises, Secondary Sub-Lessee will
promptly pay the lien; provided that Secondary Sub-Lessee shall have the right
to contest in good faith and with reasonable diligence the validity of any such
lien or claimed lien if Secondary Sub-Lessee shall post the appropriate bond or
give to Secondary Sub-Lessor such security as may be deemed reasonably
satisfactory to Secondary Sub-Lessor to insure payment thereof (and to prevent
any sale, foreclosure, or forfeiture of the leased premises by reason of
non-payment thereof) and provided further, that on final determination of the
lien or claim for lien, Secondary Sub-Lessee shall immediately pay any judgment
rendered, with all proper costs and charges, and shall have the lien released
and the judgment satisfied.
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ARTICLE IX. INSURANCE AND INDEMNITY
PROPERTY INSURANCE
Secondary Sub-Lessee shall, at his own expense, during the term of this
Secondary Sublease, keep all buildings and improvements on the leased premises
and all personal property used in connection with the operation of the leased
premises insured against loss or damage by fire or theft, with extended coverage
to include direct loss by windstorm, hail, explosion, riot, or riot attending a
strike, civil commotion, aircraft, vehicles, and smoke, in the aggregate amount
of not less than 100% of replacement value for the entire term this Secondary
Sublease. Such policy or policies of insurance shall name Secondary Sub-Lessee
and Secondary Sub-Lessor as loss payee. LIABILITY INSURANCE AND INDEMNITY
Secondary Sub-Lessee, at his own expense, shall provide and maintain in force
during the term of this Secondary Sublease, primary and excess liability
insurance coverage with limits in the amount of FIVE MILLION DOLLARS
($5,000,000.00), covering and naming both Secondary Sub-Lessor and Secondary
Sub-Lessee as insureds, for any liability for property damage or personal injury
arising as a result of Secondary Sub-Lessee's occupation of and operation on the
leased premises. This insurance is to be carried by one or more
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insurance companies authorized to transact business in Texas and approved by
Secondary Sub-Lessor.
Secondary Sub-Lessee agrees to indemnify and hold Secondary Sub-Lessor
harmless from and against all judgments, costs, damages and expenses which may
accrue against, be charged to or recovered from Secondary Sub-Lessor by reason
or on account of damage to the property of, injury to or death of any person,
arising from the use and/or occupancy of the demised premises by Secondary
Sub-Lessee, Secondary Sub-Lessee's agents, employees, contractors and
subcontractors, and/or from the use and/or occupancy by Secondary Sub-Lessee,
Secondary Sub-Lessee's agents, employees, contractors, and subcontractors of any
appurtenant facilities or property of Secondary Sub-Lessor, and/or from the use
and/or occupancy by Secondary Sub-Lessee, Secondary Sub-Lessee's agents,
employees, contractors, and subcontractors of any facilities or property of
Secondary Sub-Lessor, provided that Secondary Sub-Lessor shall give Secondary
Sub-Lessee prompt and timely notice of any claim made or suit instituted which,
in any way, affects Secondary Sub-Lessee or his insurer, and Secondary
Sub-Lessee or his insurer shall have the right to compromise and defend the same
to the extent of their own interest; provided, further, that any failure by
Secondary Sub-Lessor to give Secondary Sub-Lessee the foregoing
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notice shall not affect the liability of Secondary Sub-Lessee or his insurer
hereunder to Secondary Sub-Lessor if Secondary Sub-Lessee has received actual
timely notice of said claim or suit. Any final judgment rendered against
Secondary Sub-Lessor for any cause for which Secondary Sub-Lessee is liable
hereunder shall be conclusive against Secondary Sub-Lessee as to liability and
amount.
INSURANCE CERTIFICATES AND NOTIFICATION OF CANCELLATION
Secondary Sub-Lessee shall furnish Secondary Sub-Lessor with
certificates of all insurance required by this Article. Secondary Sub-Lessee
shall notify Secondary Sub-Lessor at least ten (10) days prior to any
cancellation of any insurance policy required by this Lease.
ARTICLE X. DAMAGE OR DESTRUCTION OF PREMISES
NOTICE TO SECONDARY SUB-LESSOR
If the leased premises, or any structures or improvements on the leased
premises, should be damaged or destroyed by fire, tornado, or other casualty,
Secondary Sub-Lessee shall give immediate written notice of the damage or
destruction to Secondary Sub-Lessor, including a description of the damage and,
as far as known to Secondary Sub-Lessee, the cause of the damage.
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DESTRUCTION OF PREMISES
If the structures or improvements on the leased premises should be
totally or partially destroyed by fire, tornado, or other casualty, then the
Secondary Sub-Lessee may elect either to repair or replace the same to the
extent of the insurance proceeds available (in which case the rent payable
hereunder shall be abated until such time as the Secondary Sub-Lessee can
reasonably resume operation of his business, and the term hereof shall be
extended for a period equal to the rent abatement period), or not to repair or
replace the same and to terminate this Secondary Sublease, effective as of the
date of written notification as provided in the preceding paragraph. In the
event that Secondary Sub-Lessee elects to terminate this Secondary Sublease, all
property insurance proceeds shall be allocated between Secondary Sub-Lessor and
Secondary Sub-Lessee. The allocation shall be based upon a yearly proration over
a 35 year period (e.g., if the casualty occurs in year three(3) of the lease
term, Secondary Sub-Lessor shall receive 3/35 of the proceeds and Secondary
Sub-Lessee shall receive 32/35 of the proceeds.
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ARTICLE XI. DEFAULT, ESCAPE AND CURE
DEFAULT BY SECONDARY SUB-LESSEE
If Secondary Sub-Lessee shall allow the rent to be in arrears more than
twenty (20) days after written notice of such delinquency, or shall remain in
default under any other condition of this Secondary Sublease for a period of
thirty (30) days after written notice from Secondary Sub-Lessor (provided that,
if such default is not reasonably capable of cure within said 30-day period,
Secondary Sub-Lessee shall not be deemed in default so long as Secondary
Sub-Lessee has commenced to cure the default within said 30-day period and
diligently prosecutes such cure to completion), Secondary Sub-Lessor may at its
option, without further notice to Secondary Sub-Lessee, terminate this Secondary
Sublease or, in the alternative, Secondary Sub-Lessor may, in addition to any
other remedies provided by law, re-enter and take possession of the premises and
remove all persons and property without being deemed guilty in any manner of
trespass and relet the premises, or any part of the premises, for all or any
part of the remainder of the Secondary Sublease term, to a party satisfactory to
Secondary Sub-Lessor and at such monthly rental as Secondary Sub-Lessor may with
reasonable diligence be able to secure.
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SECONDARY SUB-LESSOR'S LIEN
It is expressly agreed that, in the event of default by Secondary
Sub-Lessee in the payment of rent or any other sum due from Secondary Sub-Lessee
to Secondary Sub-Lessor under the terms of this Secondary Sublease, Secondary
Sub-Lessor shall have a lien upon all fixtures, chattels, or other property of
any description belonging to Secondary Sub-Lessee that are placed in, or become
a part of, the leased premises as security for rent due and to become due for
the remainder of the current Secondary Sublease term and any other sum due from
Secondary Sub-Lessee to Secondary Sub-Lessor. This lien shall not be in lieu of,
or in any way affect, the statutory landlord's lien given by law but shall be in
addition to that lien, and Secondary Sub-Lessee grants to Secondary Sub-Lessor a
security interest in all of Secondary Sub-Lessee's property placed in or on the
leased premises for purposes of this contractual lien. This shall not prevent
the sale by Secondary Sub-Lessee of any merchandise or property in the ordinary
course of business free of such lien. In the event of default by Secondary
Sub-Lessee, and in the event Secondary Sub-Lessor exercises the option to
terminate the leasehold, re-enter, and relet the premises as provided in the
preceding paragraph, then Secondary Sub-Lessor, after giving reasonable notice
to Secondary Sub-Lessee of the
Page 14
intent to take possession and giving an opportunity for a hearing on the matter,
may take possession of all of Secondary Sub-Lessee's property on the premises
and sell it at public or private sale after giving Secondary Sub-Lessee
reasonable notice of the time and place of any public sale or of the time after
that any private sale is to be made, for cash or on credit, for such prices and
terms as Secondary Sub-Lessor deems best, with or without having the property
present at the sale. The proceeds of the sale shall be applied first to the
necessary and proper expense of removing, storing, and selling such property,
then to the payment of any rent due or to become due under this Secondary
Sublease, with the balance, if any, to be paid to Secondary Sub-Lessee.
DEFAULT BY SECONDARY SUB-LESSOR
If Secondary Sub-Lessor defaults in the performance of any term,
covenant, or condition required to be performed by it under this agreement, and
such default continues for more than thirty (30) days after written notice to
Secondary Sub-Lessor (provided that, if such default is not reasonably capable
of cure within said 30-day period, Secondary Sub-Lessor shall not be deemed in
default so long as Secondary Sub-Lessor has commenced to cure the default within
said 30-day period and diligently prosecutes such cure to
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completion), Secondary Sub-Lessee may elect to do either one of the
following:
a. Secondary Sub-Lessee may remedy such default by any
necessary action and, in connection with such remedy, may
pay any reasonable expenses and employ counsel. All sums
expended, or obligations incurred, by Secondary Sub-
Lessee in connection with remedying Secondary Sub-
Lessor's default shall be paid by Secondary Sub-Lessor to
Secondary Sub-Lessee on demand and, on failure of such
reimbursement, Secondary Sub-Lessee may, in addition to
any other right or remedy that Secondary Sub-Lessee may
have, deduct these costs and expenses from rent
subsequently becoming due under this Secondary Sublease.
b. Secondary Sub-Lessee may terminate this Secondary
Sublease on giving at least sixty (60) days' written
notice to Secondary Sub-Lessor of such intention. In the
event Secondary Sub-Lessee elects this option, this
Secondary Sublease will be terminated on the date
designated in Secondary Sub-Lessee's notice, unless
Secondary Sub-Lessor has cured the default prior to
expiration of the sixty (60) day period.
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ESCAPABILITY BY SECONDARY SUB-LESSEE
In the event that Secondary Sub-Lessor exercises its right to cancel the
Operating Agreement (hereinafter defined) as permitted under Section 4 of the
Operating Agreement, Secondary Sub-Lessee shall have the election, exercisable
by written notice to Secondary Sub-Lessor, to terminate this Secondary Sublease.
CUMULATIVE REMEDIES
All rights and remedies of Secondary Sub-Lessor and Secondary Sub-Lessee
under this Article shall be cumulative, and none shall exclude any other right
or remedy provided by law or by any other provision of this Secondary Sublease.
All such rights and remedies may be exercised and enforced concurrently and
whenever, and as often, as occasion for their exercise arises. WAIVER OF BREACH
A waiver by either Secondary Sub-Lessor or Secondary Sub-Lessee of a breach of
this Secondary Sublease by the other party does not constitute a continuing
waiver or a waiver of any subsequent breach of the Secondary Sublease.
ARTICLE XII. INSPECTION BY SUB-LESSOR
Secondary Sub-Lessee shall permit Secondary Sub-Lessor and Secondary
Sub-Lessor's agents, representatives, and employees to enter into and on the
leased premises at all reasonable times,
Page 17
agreed to by Secondary Sub-Lessee in advance, for the purpose of inspection or
any other purpose necessary to protect Secondary Sub-Lessor's interest in the
leased premises or to perform Secondary Sub-Lessor's duties under this Secondary
Sublease. Said inspections shall have prior approval by management of the
facility, to enable management to provide all security precautions necessary.
ARTICLE XIII. ASSIGNMENT AND LEASE
ASSIGNMENT AND SUBLETTING BY SECONDARY SUB-LESSEE
Secondary Sub-Lessee shall have the right to assign, sublet or otherwise
transfer its rights or obligations under this Secondary Sublease or assign,
sublet or otherwise transfer any right or interest in this Secondary Sublease or
in the leased premises or the improvements or personal property located on the
leased premises; provided, however, that Secondary Sub-Lessee must first have
obtained the written consent of the Secondary Sub-Lessor, which consent shall
not be unreasonably withheld. Notwithstanding the foregoing, Secondary
Sub-Lessee may, without Secondary Sub- Lessor's consent, secure financing or
general credit lines, and, as security therefor, Secondary Sub-Lessee shall have
the right to grant a leasehold mortgage in this Secondary Sublease and enter
into such other leasehold mortgage loan documents as may be
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requested by its lenders. Upon Secondary Sub-Lessee providing notice of such
financing to Secondary Sub-Lessor, Secondary Sub- Lessor agrees that (i) except
as otherwise provided in this Lease, there shall be no cancellation or surrender
of this Secondary Sublease by joint action of Secondary Sub-Lessor and Secondary
Sub- Lessee without the prior consent in writing of the holder of such leasehold
mortgage, (ii) Secondary Sub-Lessor shall give the holder of such leasehold
mortgage concurrent notice of any defaults by Secondary Sub-Lessee, and allow
such holder the same period to remedy or cause to be remedied such defaults, but
such holder shall have no obligation to cure the same, (iii) the holder of such
leasehold mortgage may be added to the "loss payee" endorsement of any and all
insurance policies carried by Secondary Sub-Lessee, and (iv) if the holder of
such leasehold mortgage (or any affiliate of such holder) succeeds to the
interest of Secondary Sub-Lessee, whether by foreclosure or otherwise, Secondary
Sub-Lessor shall recognize such holder (or affiliate) as the secondary
sub-lessee under this Secondary Sublease and continue to be bound by the terms
hereof on the condition that such holder (or affiliate) shall cure all
outstanding defaults of Secondary Sub-Lessee of which holder has been made aware
by notice as provided herein and such holder attorns to Secondary Sub-Lessor.
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ASSIGNMENT AND SUBLETTING BY SECONDARY SUB-LESSOR
Secondary Sub-Lessor may not assign, encumber or otherwise transfer its
rights or obligations under this Secondary Sublease or any right or interest in
this Secondary Sublease or in the leased premises or the improvements or
personal property located on the leased premises, without the prior written
consent of Secondary Sub-Lessee, which consent shall not be unreasonably
withheld. Any assignment of this Secondary Sublease by Sub-Lessor must be
concurrent with an assignment by Sub-Lessor of all of its interest under the
Base Lease and the Amended Sublease (as hereinafter defined).
ARTICLE XIV. CONDEMNATION
If during the term of this Secondary Sublease or any extension thereof,
all or any part of the leased premises shall be taken for any public or
quasi-public use under any governmental law, ordinance, or regulation, or by
right of eminent domain, or should be sold to the condemning authority under
threat of condemnation, Secondary Sub-Lessee may terminate this Secondary
Sublease by giving written notice to Secondary Sub-Lessor within thirty (30)
days after possession of the condemned portion is taken by the entity exercising
the power of condemnation. In the event that Secondary Sub-Lessee does not or
fails to exercise its right to
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terminate this Secondary Sublease, Secondary Sub-Lessee shall to the extent of
available condemnation proceeds restore and rebuild the building and other
improvements situated on the leased premises to make them reasonably tenantable
and suitable for the uses for which the premises are leased (in which case the
rent payable hereunder shall be abated until such time as the Secondary Sub-
Lessee can reasonably resume operation of its business, and the term hereof
shall be extended for a period equal to the rent abatement period). Any excess
proceeds shall be allocated between Secondary Sub-Lessor and Secondary
Sub-Lessee in the same manner as provided in the last sentence of this
paragraph. If after partial condemnation, this Secondary Sublease is not
terminated, the fixed rent payable under Article II of this Secondary Sublease
shall be adjusted equitably for the then remaining term of this Secondary
Sublease. In the event that Secondary Sub-Lessee exercises its right to
terminate this Secondary Sub-Lease, all condemnation proceeds shall be allocated
between Secondary Sub-Lessor and Secondary Sub-Lessee. The allocation shall be
based on a yearly proration over a 35 year period (e.g., if the condemnation
occurs in year three (3) of the lease term, Secondary Sub-Lessor shall receive
3/35 of the proceeds and Secondary Sub-Lessee shall receive 32/35 of the
proceeds).
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CONDEMNATION BY SECONDARY SUB-LESSOR
Secondary Sub-Lessor agrees that it will not condemn any portion of the
leased premises during any term of this Secondary Sublease.
ARTICLE XVI. MISCELLANEOUS
PERSONAL PROPERTY
All personal property located on the premises or used in connection with
the ongoing correctional facility operated thereon shall become the property of
Secondary Sub-Lessor at the expiration or earlier termination of this lease.
TAXES
Although the parties believe that the leased premises are not subject to
ad valorem taxation or property taxes, the parties have agreed that should the
property be determined to be subject to ad valorem or property taxes, any and
all ad valorem or property taxes on the leased premises or the improvements or
personal property located thereon shall be the sole responsibility of Secondary
Sub-Lessor, and shall be paid by Secondary Sub-Lessor; provided, however, that
Secondary Sub-Lessee shall be responsible for ad valorem taxes with respect to
all replacement personal property added to the leased premises by Secondary
Sub-Lessee pursuant to Section 4 of this Secondary Sublease.
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NOTICES AND ADDRESSES
All notices required under this Secondary Sublease must be given by
certified mail, return receipt requested, addressed to the proper party, at the
following addresses:
Secondary Sub-Lessor:
City Manager
City of Big Spring, Texas
310 Nolan
Big Spring, TX 79720
Secondary Sub-Lessee:
Ed Davenport
c/o Midtex Detentions, Inc.
ATTENTION: Johnny Rutherford
610 Main, Suite A
Big Spring, TX 79720
Either party may change the address to which notices are to be sent it by giving
the other party notice of the new address in the manner provided in this
section. Additionally, Secondary Sub-Lessor agrees to provide a copy of any
notice to Secondary Sub-Lessee to any mortgagee of Secondary Sub-Lessee for
which it has been provided an address and Secondary Sub-Lessor agrees that any
such mortgagee shall be afforded the same rights to cure any default of
Secondary Sub-Lessee as are available to Secondary Sub-Lessee under this
Secondary Sublease.
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PRIOR AGREEMENTS SUPERSEDED
This agreement constitutes the sole and only Secondary Sublease of the
parties relating to the leased premises and supersedes any prior understandings
or written or oral agreements between the parties respecting this Secondary
Sublease.
AMENDMENT
No amendment, modification, or alteration of the terms of this agreement
shall be binding unless it is in writing, dated subsequent to the date of this
agreement, and duly executed by the parties to this agreement.
RIGHTS AND REMEDIES CUMULATIVE
The rights and remedies provided by this Secondary Sublease are
cumulative, and the use of any one right or remedy by either party shall not
preclude or waive that party's right to use any or all other remedies. The
rights and remedies provided in this Secondary Sublease are in addition to any
other rights the parties may have by law, statute, ordinance, or otherwise.
ATTORNEY'S FEES AND COSTS
If, as a result of a breach of this agreement by either party, the other
party employs an attorney or attorneys to enforce its/his rights under this
Secondary Sublease, then the breaching or defaulting party agrees to pay the
other party the reasonable attorney's fees and costs incurred to enforce the
Secondary Sublease.
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FORCE MAJEURE
Neither Secondary Sub-Lessor nor Secondary Sub-Lessee shall be required
to perform any term, condition, or covenant in this Secondary Sublease so long
as such performance is delayed or prevented by force majeure, which shall mean
acts of God, material or labor restrictions by any governmental authority, civil
riot, floods, and any other cause not within the control of Secondary Sub-Lessor
or Secondary Sub-Lessee and which by the exercise of due diligence Secondary
Sub-Lessor or Secondary Sub-Lessee is unable, wholly or in part, to prevent or
overcome.
TIME OF ESSENCE
Time is of the essence of this agreement.
JOINDER OF SECONDARY SUB-LESSOR AS LESSOR UNDER THE BASE LEASE AND
SUB-LESSEE UNDER THE AMENDED SUBLEASE
The leased premises covered by this Secondary Sublease are also subject
to the following existing lease agreements:
1. Lease Agreement dated the 18th day of February, 1994,
between the City of Big Spring, Texas, as Lessor, and Ed
Davenport, as Lessee, a copy of which is attached hereto
as Exhibit "C";
2. Lease Amendment, undated, between Lanny Lambert, as Agent
for the City of Big Spring, Lessor, and Johnny Rutherford
Page 25
for Ed Davenport, Lessee, a copy of which is attached hereto as
Exhibit "D" (the Lease Agreement, as amended, is referred to
herein as the "Base Lease");
3. Amended Sub-Lease Agreement, Flightline Unit, dated the 1st day
of July, 1996, between Ed Davenport, as Sub-Lessor, and the City
of Big Spring, Texas, as Sub-Lessee, a copy of which is attached
hereto as Exhibit "E" (the "Amended Sublease").
Secondary Sub-Lessor recognizes and agrees that certain conflicts or
inconsistencies may exist between this Secondary Sublease and the Base Lease and
between this Secondary Sublease and the Amended Sublease, including without
limitation, variations in the manner in which insurance or condemnation proceeds
shall be paid, variations in the notice and curative provisions and variations
in the approvals required for alterations, additions or improvements to the
leased premises. By its execution of this Secondary Sublease, Secondary
Sub-Lessor (in its capacity as Lessor under the Base Lease and Sub-Lessee under
the Amended Sublease) hereby consents to the terms of the Secondary Sublease and
agrees that in the event of any such conflicts the Secondary Sublease shall
control.
CROSS-DEFAULT
Concurrent with the execution of this Secondary Sublease, (i)
Secondary Sub-Lessor and Secondary Sub-Lessee have entered the Amended
Sublease,(ii)Secondary Sub-Lessee has assigned its interest
Page 26
in this Secondary Sublease, the Amended Sublease and the Base Lease to Cornell
Corrections of Texas, Inc. (ACornell@) and (ii) Secondary Sub-Lessor and Cornell
have entered into an Operating Agreement (the AOperating Agreement") wherein
Secondary Sub-Lessor has engaged Cornell to operate the correctional facility
located on the leased premises. Secondary Sub-Lessor and Secondary Sub-Lessee
hereby agree that a default by Secondary Sub-Lessor under the Base Lease, the
Amended Sublease or the Operating Agreement shall constitute a default by
Secondary Sub-Lessor under this Secondary Sublease, and following notice and the
expiration of any curative rights specified in the Operating Agreement, the
Amended Sublease or the Base Lease, as the case may be, Secondary Sub-Lessee
shall have the right to terminate this Secondary Sublease by delivering written
notice of termination to Secondary Sub-Lessor.
Page 27
The undersigned Secondary Sub-Lessor and Secondary Sub-Lessee execute
this agreement as of the 1st day of July, 1996, at Houston, Harris County,
Texas.
Secondary Sub-Lessor:
CITY OF BIG SPRING, TEXAS
BY:/s/ TIM BLACKSHEAR
Tim Blackshear, Mayor
City of Big Spring, Texas
310 Nolan
Big Spring, TX 79720
ATTEST:
/s/ TOM FERGUSON
Tom Ferguson,
City Secretary
Secondary Sub-Lessee:
/s/ Ed davenport
ED DAVENPORT
THE STATE OF TEXAS ss.
COUNTY OF HARRIS ss.
This instrument was acknowledged before me on the 9th day of July, 1996,
by TIM BLACKSHEAR as Mayor of the CITY OF BIG SPRING, TEXAS.
/s/ CHARLOTTE POE
Notary Public, State of Texas
THE STATE OF TEXAS ss.
COUNTY OF HARRIS ss.
This instrument was acknowledged before me on the 9th day of July, 1996,
by ED DAVENPORT.
/s/ CHARLOTTE POE
Notary Public, State of Texas
Page 29
EXHIBIT "A"
Attached to Secondary Sublease Agreement by
and between the City of Big Spring, Texas,
Secondary Sub-Lessor, and Ed Davenport,
Secondary Sub-Lessee
[Legal description of leased premises]
DESCRIPTION OMITTED
EXHIBIT "B"
Attached to Secondary Sublease Agreement by
and between the City of Big Spring, Texas,
Secondary Sub-Lessor, and Ed Davenport,
Secondary Sub-Lessee
This Exhibit includes the personal property located at all three
Big Spring Correctional Center ("BSCC") facilities -- Interstate, Airpark and
Flightline. Only a portion of this personal property is located at the facility
that is the subject of this lease agreement, but when taken in conjunction with
the lease agreements on the two other BSCC facilities, represents all of the
personal property used in connection with the BSCC.
LIST OMITTED
EXHIBIT "C"
Attached to Secondary Sublease Agreement by
and between the City of Big Spring, Texas,
Secondary Sub-Lessor, and Ed Davenport,
Secondary Sub-Lessee
[Lease Agreement dated 2/18/94]
EXHIBIT "C"
LEASE
This Lease is made and entered into by and between THE CITY OF BIG
SPRING, a Municipal Corporation of the State of Texas, referred to in this lease
as Lessor, and ED DAVENPORT, referred to in this lease as Lessee.
In consideration of the mutual covenants and agreements set forth in
this lease, and other good and valuable consideration, Lessor demises and leases
to Lessee, and Lessee leases from Lessor, the premises described in Exhibit A
attached to this lease. These premises are referred to in this lease as "the
premises" or "the leased premises."
ARTICLE 1.TERM
Term of Lease
1.01. The term of this lease shall be twenty (20) years, commencing on
the 15TH day of FEBRUARY, 1994, and ending on the 14TH day of FEBRUARY, 2014,
unless sooner terminated or extended as provided in this lease.
Option to Extend Term
1.02. Lessee has the right to extend this lease beyond the expiration
date provided in 1.01 on the following terms and conditions:
a. Should Lessee fully and faithfully perform all of the terms
and conditions of this lease, Lessee may extend the term of this lease for a
period of five (5) years, with the extended term to begin on the day following
the expiration date of the lease term specified in 1.01, and for four (4)
additional periods of the same length, each to commence on the day following the
expiration date of the immediately preceding extended term. Provided, however,
that if at the date of expiration of the original term or any extended term,
Lessee is in default beyond any grace period provided in this lease in the
performance of any of the terms or provisions of this lease, the remaining
option or options shall be null and void. All of the terms, covenants, and
provisions of this lease shall apply to all extended lease terms.
b. Lessee may exercise each option to extend this lease by giving
to Lessor notice of its intention to do so not later than thirty (30) days prior
to the expiration of the lease term, in the case of the initial option to
extend, or the extended lease term, in the case of successive options to extend.
To constitute effective notice of an intention to exercise an option under this
lease, the notice must be sent by certified or registered mail to Lessor at the
address provided in 15.01 of this lease and must be postmarked no later than the
latest date provided in this section for Lessee's exercise of the option.
Holdover
1.03. If Lessee holds over and continues in possession of the leased
premises after expiration of the term of this lease or any extension of that
term, other than as provided in 1.02, Lessee will be deemed to be occupying the
premises on the basis of a month-to-month tenancy, subject to all of the terms
and conditions of this lease.
ARTICLE 2. RENT
Fixed Rent
2.01. Lessee agrees to pay to Lessor the sum of $ 800.00 per month on or
before the first day of each month as a fixed rent for the succeeding month.
Rent for any fractional month at the beginning or end of the lease term shall be
prorated on a per diem basis. This fixed rent will increase on each fifth (5th)
anniversary of this lease, by one percent (1%) for each point of increase in the
Consumer Price Index based on the United States average published by the Bureau
of Labor Statistics, U.S. Department of Labor, at the effective date of this
lease agreement. Such increase shall become effective immediately upon notice by
Lessor of the adjusted fixed rent amount. Lessee agrees to pay this fixed rent
to Lessor at Lessor's office, located at 310 Nolan, Big Spring, Texas or at such
other location or locations as Lessor shall from time to time designate by
written notice to Lessee.
Late Penalty
2.01. (a) If the rent is not paid by the tenth of the month, an
additional ten percent (10%) of the monthly rental will be charged to the Lessee
as a late penalty.
Taxes and Assessments as Additional Rent
2.02. In addition to the fixed rent specified in 2.01, Lessee shall pay
the full amount of all real property taxes, special assessments, and
governmental charges of every character imposed on the leased premises during
the term of this lease, including any special assessments imposed on, or
against, the premises for the construction or improvement of public works.
Lessor acknowledges its obligation under Article 5.03 to provide initial utility
service at Lessor's sole cost and expense. This additional rent shall be payable
directly to the entity imposing the tax, assessment, or charge at least thirty
(30) days prior to the date on which the payment is due. Lessee shall provide
Lessor with a receipt or other evidence of payment for each such tax,
assessment, or charge paid as soon as a receipt or other evidence is available
to Lessee.
Deposit
2.03. Lessee shall deposit with Lessor the sum of one month's rental
which deposit shall be retained by Lessor during the lease term. Upon
termination of the lease, the deposit will be returned to Lessee, less and
except any monies then due and owing to Lessor by Lessee under the terms of this
lease, including any cost of restoring the premises to the condition called for
under the terms hereof, as well as any other indebtedness caused or charges
owing by Lessee to Lessor or to any third parties.
ARTICLE 3. USE OF PREMISES
Permitted Use
3.01. Lessee may use the premises to operate and conduct a correctional
facility. Lessee may not use the premises for any other purpose without the
written consent of Lessor. Such consent shall not be unreasonably withheld.
Waste, Nuisance, or Illegal Uses
3.02. Lessee shall not use, or permit the use of, the premises in any
manner that results in waste of the premises or constitutes a nuisance or
violates any statute, ordinance, rule, or regulation applicable to the premises
or for any illegal purpose.
ARTICLE 4. REPAIR AND MAINTENANCE
Repairs and Maintenance by Lessee
4.01. Lessee has inspected the leased premises and has found them in
good condition and repair. Lessee shall, throughout the term of this lease and
any extensions of that term, at its own expense and risk, maintain the leased
premises and all improvements on the leased premises in good order and
condition, including but not limited to making all repairs and replacements
necessary to keep the premises and improvements in such condition. All
maintenance, repairs, and replacements required by this section must be
performed promptly when required and in a manner that will not cause
depreciation in the value of the premises.
Lessee's Failure to Repair or Maintain
4.02. In the event Lessee fails to perform its obligation to repair,
replace, or maintain, as set forth in 4.01 above, after notice from Lessor of
the need for such repair, replacement, or maintenance and the passage of a
reasonable amount of time for performance after such notice, Lessor may enter
the premises and make such repairs or replacements, or perform such maintenance
or cause such repairs or replacements to be made or maintenance to be performed,
at its own expense. Upon Lessor's notice to Lessee of the performance and cost
of any maintenance, repairs, or replacements pursuant to this section, Lessee
must immediately reimburse Lessor for any reasonable costs incurred by Lessor
pursuant to this section, together with interest on any such sum at the highest
legal rate from the date of the notice until the date paid by Lessee to Lessor.
ARTICLE 5. UTILITIES AND GARBAGE REMOVAL
Utility Charges
5.01. Lessee shall pay all utility charges for water, electricity, heat,
gas, and telephone service used in and about the leased premises during the term
of the lease, all such charges to be paid by Lessee directly to the utility
company or municipality furnishing the same, before the same shall become
delinquent.
Garbage Removal
5.02. Lessee shall pay for the removal of all garbage, weeds and rubbish
from the leased premises during the term of the lease. Lessor to Provide Utility
Service
5.03. Utility service is not currently available at the leased premises.
Lessor, at Lessor's sole cost and expense, shall provide all necessary permanent
utility services and meters to the leased premises on or before one
hundred-eighty (180) days after the execution of this lease. Lessor, at its sole
cost, shall provide temporary water and electrical service for construction
purposes within thirty (30) days after execution of this lease.
ARTICLE 6. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS
Consent of Lessor
6.01. Lessee shall not make any alterations, additions, or improvements
to the leased premises without the prior written consent of Lessor. Consent for
nonstructural alterations, additions, or improvements shall not be unreasonably
withheld by Lessor. Lessor consents to the construction of Big Spring
Correctional Center Unit III on the leased premises according to the plans and
specifications agreed to by the parties.
Property of Lessor
6.02. All alterations, additions, or improvements made by Lessee shall
become the property of Lessor at the termination of this lease. Lessor may,
however, require that Lessee remove any or all alterations, additions, and
improvements installed or made by Lessee, and any other property placed on the
premises by Lessee, upon termination of the lease. In the event that Lessor
requires Lessee to remove such alterations, additions, or improvements, Lessee
shall repair any damage to the premises caused by such removal.
ARTICLE 7. TRADE FIXTURES AND SIGNS
Trade Fixtures
7.01. Lessee has the right at all times to erect or install shelves,
bins, machinery, equipment, or other trade fixtures, in, on, or about the leased
premises, provided that Lessee complies with all applicable governmental laws,
ordinances, and regulations regarding such fixtures. Lessee has the right to
remove all trade fixtures at the termination of this lease, provided Lessee is
not in default under the lease and that the fixtures can be removed without
structural damage to the building. Lessee must repair any damage to the leased
premises caused by removal of trade fixtures, and all such repairs must be
completed prior to the termination of the lease. Any trade fixtures that have
not been removed by Lessee at the termination of this lease shall be deemed
abandoned by the Lessee and shall automatically become the property of Lessor.
In the event any trade fixture installed by Lessee is abandoned at the
termination of the lease, Lessee must pay Lessor any reasonable expense actually
incurred by Lessor to remove the fixture from the premises, less the fair market
value of the fixture once removed, provided the fixture is removed within thirty
(30) days after Lessee has surrendered possession of the premises. This clause
shall not apply to shelves, bins, machinery, equipment or other trade fixtures
or personal property located on the leased premises and owned by Lessor.
Signs
7.02. Lessee shall have the right to erect signs on any portion of the
leased premises, including, but not limited to, the exterior walls of the
premises, subject to applicable laws, ordinances, and regulations. Lessee must
remove all signs at the termination of this lease and repair any damage
resulting from the erection or removal of the signs.
ARTICLE 8. MECHANIC'S LIEN
Lessee will not permit any mechanic's lien or liens to be placed upon
the leased premises or improvements on the premises. If a mechanic's lien is
filed on the leased premises or on improvements on the leased premises, Lessee
will promptly pay the lien. If default in payment of the lien continues for
twenty (20) days after written notice from Lessor to Lessee, Lessor may, at its
option, pay the lien or any portion of it without inquiry as to its validity.
Any amounts paid by the Lessor to remove a mechanic's lien caused to be filed
against the premises or improvements on the premises by Lessee, including
expenses and interest, shall be due from Lessee to Lessor and shall be repaid to
Lessor immediately on rendition of notice, together with interest at ten percent
(10%) per annum until repaid.
ARTICLE 9. INSURANCE AND INDEMNITY
Liability Insurance
9.01. Lessee, at its own expense, shall provide and maintain in force
during the term of this lease, liability insurance in the amount of $300,000.00,
or self insure in that amount, covering Lessor as well as Lessee, for any
liability for property damage or personal injury arising as a result of Lessee's
occupation or Lessor's ownership of the leased premises. This insurance is to be
carried by one or more insurance companies authorized to transact business in
Texas and approved by Lessor.
Remedy for Failure to Provide Insurance
9.02. Lessee shall furnish Lessor with certificates of all insurance
required by this article (or self insure) . If Lessee does not provide such
certificates upon Lessor's delivery of possession to Lessee or if Lessee allows
any insurance required under this article to lapse, Lessor may, at its option,
take out and pay the premiums on the necessary insurance to comply with Lessee's
obligations under the provisions of this article. Lessor is entitled to
reimbursement from Lessee for all amounts spent by it to procure and maintain
such insurance, with interest at the rate of ten percent (10%) per annum from
the date of receipt of Lessor's notice of payment until reimbursement by Lessee.
Hold-Harmless Clause
9.03. Lessee agrees to indemnify and hold Lessor harmless against any
and all claims, demands, damages, costs, and expenses, including reasonable
attorney's fees for the defense of such claims and demands, arising from the
conduct or management of Lessee's business on the leased premises, or its use of
the leased premises or from any breach on the part of Lessee of any conditions
of this lease, or from any act or negligence of Lessee, its agents,contractors,
employees, subtenants,concessionaires, or licensees in or about the leased
premises. In case of any action or proceeding brought against Lessor by reason
of any such claim, Lessee, upon notice from Lessor, agrees to defend the action
or proceeding by councel acceptable to Lessor
ARTICLE 10. DAMAGE OR DESTRUCTION OF PREMISES
Notice to Lessor
If the leased premises, or any structures or improvements on the leased
premises, should be damaged or destroyed by fire, tornado, or other casualty,
Lessee shall give immediate written notice of the damage or destruction to
Lessor, including a description of the damage and, as far as known to Lessee,
the cause of the damage.
ARTICLE 11. CONDEMNATION
Total Condemnation
11.01. If during the term of this lease or any extension or renewal of
it, all of the leased premises should be taken for any public or quasi-public
use under any governmental law, ordinance, or regulation, or by right of eminent
domain, or should be sold to the condemning authority under threat of
condemnation, this lease shall terminate, and the rent shall be abated during
the unexpired portion of this lease, effective as of the date of the taking of
the premises by the condemning authority.
Partial Condemnation
11.02. If less than all, but more than fifty percent (50%), of the
leased premises is taken for any public or quasi-public use under any
governmental law, ordinance, or regulation, or by right of eminent domain, or
should be sold to the condemning authority under threat of condemnation, Lessee
may terminate the lease by giving written notice to Lessor within thirty (30)
days after possession of the condemned portion is taken by the entity exercising
the power of condemnation.
If the leased premises are partially condemned and Lessee fails to
exercise the option to terminate the lease under this section, or if less than
fifty percent (50%) of the leased premises are condemned, this lease shall not
terminate, but Lessee may, at its sole expense, restore and reconstruct the
building and other improvements situated on the leased premises to make them
reasonably tenantable and suitable for the uses for which the premises are
leased. The fixed rent payable under 2.01 of this lease shall be adjusted
equitably during the unexpired portion of this lease.
Condemnation Award
11.03. Lessor and Lessee shall each be entitled to receive and retain
such separate awards, and portions of lump sum awards, as may be allocated to
their respective interests in any condemnation proceedings. The termination of
this lease shall not affect the rights of the respective parties to such awards.
Condemnation by Lessor
11.04. Lessor agrees that it will not condemn any portion of the leased
premises during any term of this lease.
ARTICLE 12. DEFAULT
Default by Lessee
12.01. If Lessee shall allow the rent to be in arrears more than ten
(10) days after written notice of such delinquency, or shall remain in default
under any other condition of this lease for a period of twenty (20) days after
written notice from Lessor, Lessor may at its option, without notice to Lessee,
terminate this lease or, in the alternative, Lessor may reenter and take
possession of the premises and remove all persons and property without being
deemed guilty of any manner of trespass and relet the premises, or any part of
the premises, for all or any part of the remainder of the lease term, to a party
satisfactory to Lessor and at such monthly rental as Lessor may with reasonable
diligence be able to secure. Should Lessor be unable to relet after reasonable
efforts to do so, or should such monthly rental be less than the rental Lessee
was obligated to pay under this lease, or any renewal of this lease, plus the
expense of reletting, then Lessee shall pay the amount of such deficiency to
Lessor.
Lessor's Lien
12.02. It is expressly agreed that, in the event of default by Lessee in
the payment of rent or any other sum due from Lessee to Lessor under the terms
of this lease, Lessor shall have a lien upon all fixtures, chattels, or other
property of any description belonging to Lessee that are placed in, or become a
part of, the leased premises as security for rent due and to become due for the
remainder of the current lease term and any other sum due from Lessee to Lessor.
This lien shall not be in lieu of, or in any way affect, the statutory lessor's
lien given by law but shall be in addition to that lien, and Lessee grants to
Lessor a security interest in all of Lessee's property placed in or on the
leased premises for purposes of this contractual lien. This shall not prevent
the sale by Lessee of any merchandise in the ordinary course of business free of
such lien to Lessor. In the event Lessor exercises the option to terminate the
leasehold, reenter, and relet the premises as provided in the preceding
paragraph, then Lessor, after giving reasonable notice to Lessee of the intent
to take possession and giving an opportunity for a hearing on the matter, may
take possession of all of Lessee's property on the premises and sell it at
public or private sale after giving Lessee reasonable notice of the time and
place of any public sale or of the time after that any private sale is to be
made, for cash or on credit, for such prices and terms as Lessor deems best,
with or without having the property present at the sale. The proceeds of the
sale shall be applied first to the necessary and proper expense of removing,
storing, and selling such property, then to the payment of any rent due or to
become due under this lease, with the balance, if any, to be paid to Lessee.
Default by Lessor
12.03. If Lessor defaults in the performance of any term, covenant, or
condition required to be performed by it under this agreement, Lessee may elect
to do either one of the following:
(1) After not less than thirty (30) days' notice to Lessor,
Lessee may remedy such default by any necessary action and, in connection with
such remedy, may pay expenses and employ counsel. All sums expended, or
obligations incurred, by Lessee in connection with remedying Lessor's default
shall be paid by Lessor to Lessee on demand and, on failure of such
reimbursement, Lessee may, in addition to any other right or remedy that Lessee
may have, deduct these costs and expenses from rent subsequently becoming due
under this lease.
(2) Lessee may terminate this lease on giving at least thirty
(30) days' notice to Lessor of such intention. In the event Lessee elects this
option, the lease will be terminated on the date designated in Lessee's notice,
unless Lessor has cured the default prior to expiration of the thirty-day (30)
period.
Cumulative Remedies
12.04. All rights and remedies of Lessor and Lessee under this Article
shall be cumulative, and none shall exclude any other right or remedy provided
by law or by any other provision of this lease. All such rights and remedies may
be exercised and enforced concurrently and whenever, and as often, as occasion
for their exercise arises. Waiver of Breach 11.05. A waiver by either Lessor or
Lessee of a breach of this lease by the other party does not constitute a
continuing waiver or a waiver of any subsequent breach of the lease.
Waiver of Breach
12.05. A waiver by either Lessor or Leesee of a breach of this lease by
the other party does not constitute waiver of any subsequent breach of the
lease.
ARTICLE 13. INSPECTION BY LESSOR
Lessee shall permit Lessor and Lessor's agents, representatives, and
employees to enter into and on the leased premises at all reasonable times for
the purpose of inspection or any other purpose necessary to protect Lessor's
interest in the leased premises or to perform Lessor's duties under this lease.
ARTICLE 14. ASSIGNMENT AND SUBLEASE
Assignment and Subletting by Lessee
14.01. Lessee shall have the unrestricted right to assign its rights
under this lease to anyone, including, but not limited to, The First National
Bank in Big Spring.
Assignment by Lessor
14.02. Lessor may assign or transfer any or all of its interests under
the terms of this lease.
ARTICLE 15. MISCELLANEOUS
Notices and Addresses
15.01 All notices required under this lease must be given by certified
mail or registered mail, addressed to the proper party, at the following
addresses:
Lessor: The City of Big Spring, Texas
310 Nolan
Big Spring, TX 79720
Lessee:
Ed Davenport
610 Main
Big Spring, TX 79720
Either party may change the address to which notices are to be sent it by giving
the other party notice of the new address in the manner provided in this
section.
Parties Bound
15.02. This agreement shall be binding upon, and inure to the benefit
of, the parties to the lease and their respective heirs, executors,
administrators, legal representatives, successors, and assigns when permitted by
this agreement.
Texas Law to Apply
15.03. This agreement shall be construed under, and in accordance with,
the laws of the State of Texas, and all obliga tions of the parties created by
this lease are performable in Howard County, Texas.
Legal Construction
15.04. In case any one or more of the provisions contained in this
agreement shall for any reason be held by a court of competent jurisdiction to
be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect any other provision of the
agreement, and this agreement shall be construed as if the invalid, illegal, or
unenforceable provision had never been included in the agreement. Prior
Agreements Superseded 13.05. This agreement constitutes the sole and only
agreement of the parties to the agreement and supersedes any prior
understandings or written or oral agreements between the parties respecting the
subject matter of this agreement.
Prior Agreements Supersede
15.05 This agreement constitutes the sole and only agreement of the
agreement and superedes any prior understandings or written or oral agreements
between the parties respecting the subject matter of this agreement
Amendment
15.06. No amendment, modification, or alteration of the terms of this
agreement shall be binding unless it is in writing, dated subsequent to the date
of this agreement, and duly executed by the parties to this agreement.
Rights and Remedies Cumulative
15.07. The rights and remedies provided by this lease agreement are
cumulative, and the use of any one right or remedy by either party shall not
preclude or waive that party's right to use any or all other remedies. The
rights and remedies provided in this lease are in addition to any other rights
the parties may have by law, statute, ordinance, or otherwise.
Attorney's Fees and Costs
15.08. If, as a result of a breach of this agreement by either party,
the other party employs an attorney or attorneys to enforce its rights under
this lease, then the breaching or defaulting party agrees to pay the other party
the reasonable attorney's fees and costs incurred to enforce the lease.
Force Majeure
15.09. Neither Lessor nor Lessee shall be required to perform any term,
condition, or covenant in this lease so long as such performance is delayed or
prevented by FORCE MAJEURE, which shall mean acts of God, strikes, lockouts,
material or labor restrictions by any governmental authority, civil riot,
floods, and any other cause not reasonably within the control of Lessor or
Lessee and which by the exercise of due diligence Lessor or Lessee is unable,
wholly or in part, to prevent or overcome.
Compatibility with Airport Operations
15.10. All construction, erection, alteration or growth of any
structure, tree or other object on the leased premises must not constitute an
obstruction to air navigation. No use of the property shall interfere with
aircraft operations (taxiing, takeoff and landing) at the McMahon-Wrinkle
Airpark. Lessor shall be responsible for obtaining FAA approval of any and all
construction, erection or alteration on the leased premises, including the
initial construction based upon the plans and specifications agreed to by the
parties.
Non-Discrimination
15.11. The Lessor, in exercising any of the rights or privileges herein
granted to it, shall not on the grounds of race, color or national origin
discriminate or permit discrimination against any person or group of persons in
any manner prohibited by part 21 of the regulations of the Secretary of
Transportation issued under the provisions of Title 6 of the Civil Rights Act of
1964. The Lessor is hereby granted the right to take such action, anything to
the contrary notwithstanding, as the United States may direct to enforce this
nondiscrimination covenant.
Time of Essence
15.12. Time is of the essence of this agreement.
Conflicts with Provisions of Sublease
15.13. The parties acknowledge that they are simultaneously entering
into a Sublease Agreement covering the same property, wherein the Lessor herein
is Sub-Lessee and the Lessee herein is Sub-Lessor. During the entire period when
both this Lease Agreement and the Sublease Agreement are in full force and
effect, any conflicts between the terms and provisions of this Lease Agreement
and the Sublease Agreement shall be controlled by the provisions in the Sublease
Agreement. The potential conflicts include repairs and maintenance, utilities
and garbage removal, alterations, additions and improvements, trade fixtures and
signs, condemnation and taxes. If the Sublease Agreement is terminated for any
reason, then the provisions in this Lease Agreement regarding those areas shall
become operable and in full force and effect so long as this Lease Agreement
remains in effect.
The undersigned Lessor and Lessee execute this agreement on the 18TH day
of FEBRUARY, 1994, at Big Spring, Howard County, Texas.
LESSOR:
------------------------------------
THE CITY OF BIG SPRING, TEXAS,
-----------------------------------
BY: TIM BLACKSHEAR, MAYOR
ATTEST:
- ----------------------------
TOM FERGUSON, CITY SECRETARY
LESSEE:
------------------------------------
ED DAVENPORT
THE STATE OF TEXAS ss.
COUNTY OF HOWARD ss.
This instrument was acknowledged before me on the _______day of
____________, 199_, by TIM BLACKSHEAR as Mayor of the CITY OF BIG SPRING, TEXAS.
-----------------------------
Notary Public, State of Texas
THE STATE OF TEXAS ss.
COUNTY OF ss.
This instrument was acknowledged before me on the ___ day
of____________, 199_, by ED DAVENPORT.
-----------------------------
Notary Public, State of Texas
CRIM & BRADSHAW ENGINEERING
SURVEY \ ENGINEERING
805 East 3rd Street, Big Spring, Texas, 79720
915-263-1098 Fax 915-263-1294
December 27,1993
22.798 ACRE TRACT
Being a 22.798 acre tract out of the W/2 of Section 3, Block 33, T- 1-S, T. & P.
RR. Co. Survey, Howard County, Texas, described by metes and bounds as follows:
Beginning at a 120-D Nail in Pavement for the SW corner of this tract; from
whence the SW corner of Section 3, Block 33, T-1-S, T. & P. RR. Co. Survey,
Howard County,Texas, bears S. 6(degrees)40|13" W. 2201.1|.
Thence N. 85(degrees)53|02" E. 808.8| to a 120-D Nail for the SE corner of this
tract
Thence N. 1(degrees)53|33" E. 979.53| to a 120-D Nail for a corner in the East
line of this tract
Thence N. 10(degrees)38|21" W. 138.11" to a 120-D Nail for a corner in the East
line of this tract
Thence N. 38(degrees)14|22" W. 93.02| to a 120-D Nail for a corner of this tract
Thence N. 50(degrees)18|20" W. 325.12| to a 120-D Nail for the NE corner of
this tract
Thence S. 85(degrees)45|08" W. 327.44| to a 120-D Nail for the NW corner of this
tract
Thence S. 7(degrees)09|02" W. 1440.4| to the place of beginning.
Containing 22.798 Acres
- ---------------------
Michael Lynn McBrayer
Licensed Professional Land Surveyor
No. 4161
EXHIBIT "D"
Attached to Secondary Sublease Agreement by
and between the City of Big Spring, Texas,
Secondary Sub-Lessor, and Ed Davenport,
Secondary Sub-Lessee
[Lease Amendment, undated]
EXHIBIT "D"
LEASE AMENDMENT
This Administrative Lease Amendment is made and entered into between Lanny S.
Lambert, City Manager, Chief Administration Office of the City of Big Spring,
Lessor and Johnny Rutherford, President of Midtex Detention Center Inc. for Ed
Davenport, Lessee.
ARTICLE 2 RENT
FIXED RENT
2.01 The fixed rent in the sum of Eight Hundred Dollars ($800.00) is amended to
read Six Hundred Thirty Four Dollars ($634.00) per month, effective October 1,
1994.
This reduction is by Mutual Agreement and is within the FAA Fair Market Value
(FMV) criteria.
-----------------------------
LANNY S. LAMBERT
Lessor Agent
City of Big Spring
ATTEST:
- ------------------------------
TOM FERGUSON, City Secretary
LESSEE
-----------------------------
JOHNNY RUTHERFORD
President, Midtex Detention
Center, Inc.
EXHIBIT "E"
Attached to Secondary Sublease Agreement by
and between the City of Big Spring, Texas,
Secondary Sub-Lessor, and Ed Davenport,
Secondary Sub-Lessee
[Amended Sublease Agreement, Flightline Unit, dated 7/1/96]
EXHIBIT "E"
AMENDED SUBLEASE AGREEMENT
FLIGHTLINE UNIT
This Sublease is made and entered into by and between Ed Davenport of
McCulloch County, Texas, referred to in this Amended Sublease as Sub-Lessor, and
the City of Big Spring, Texas, a municipal corporation, referred to in this
Amended Sublease as Sub-Lessee.
In consideration of the mutual covenants and agreements set forth in
this Amended Sublease, and other good and valuable consideration, Sub-Lessor
demises and leases to Sub-Lessee, and Sub-Lessee leases from Sub-Lessor, the
22.798 acre tract of real property situated on Big Spring McMahon-Wrinkle
Airpark property in Big Spring, Howard County, Texas, including any and all
improvements located thereon, said real property more particularly described in
Exhibit "A" attached to this Amended Sublease. These premises are referred to in
this Amended Sublease as "the premises" or "the leased premises."
ARTICLE I. TERM
TERM OF AMENDED SUBLEASE
The term of this Amended Sublease shall begin on the date of execution
hereof, and end on the 14th day of February, 2034, unless sooner terminated as
provided in this Amended Sublease.
HOLDOVER
If Sub-Lessee holds over and continues in possession of the leased
premises after expiration of the term of this Amended Sublease or any extension
of that term, other than as provided in the preceding paragraph, Sub-Lessee will
be deemed to be occupying the premises on the basis of a month-to-month tenancy,
subject to all of the terms and conditions of this Amended Sublease.
ARTICLE II. RENT
FIXED RENT
Sub-Lessee agrees to pay Sub-Lessor the sum of ONE DOLLAR ($1.00) per
year on or before the first day of June, each year, as fixed rental for each
succeeding year during the entire term of this Amended Sublease; provided that,
if the Secondary Sublease (as hereinafter defined) between Sub-Lessor and
Sub-Lessee should terminate for any reason, the fixed rental payable hereunder
shall increase to the same amount of rental as is payable by Sub-Lessor under
the Base Lease (as hereinafter defined).
Sub-Lessee agrees to pay all rent to Sub-Lessor at Sub-Lessor's office,
located at 610 Main Street, Big Spring, TX 79720, or at such other location or
locations as Sub-Lessor shall from time to time designate by written notice to
Sub-Lessee.
ARTICLE III. USE OF PREMISES
PERMITTED USE
Sub-Lessee may use the premises to operate and conduct a correctional or
detention facility. Sub-Lessee may not use the premises for any other purpose
without the written consent of Sub- Lessor.
WASTE, NUISANCE, OR ILLEGAL USES
Sub-Lessee shall not use, or permit the use of, the premises in any
manner that results in waste of the premises or constitutes a nuisance or
violates any statute, ordinance, rule, or regulation applicable to the premises
or for any illegal purpose.
ARTICLE IV. REPAIRS AND MAINTENANCE
REPAIRS AND MAINTENANCE BY SUB-LESSEE
Sub-Lessee shall, throughout the term of this Amended Sublease and any
extensions of that term, at its own expense and risk, maintain the leased
premises and all improvements on the leased premises in good order and
condition, including but not limited to making all repairs and replacements
necessary to keep the premises and improvements in such condition, normal wear
and tear excepted.
ARTICLE V. UTILITIES
UTILITY CHARGES
Sub-Lessee shall pay all utility charges, including but not limited to,
water, electricity, heat, gas, and telephone service, used in and about the
leased premises during the term of the Amended Sublease, all such charges to be
paid by Sub-Lessee directly to the utility company or municipality furnishing
the same, before the same shall become delinquent.
GARBAGE REMOVAL
Sub-Lessee shall pay for the removal of all garbage and rubbish from the
leased premises during the term of the Amended Sublease.
ARTICLE VI. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS
NO CONSENT OF SUB-LESSOR
Sub-Lessee shall have the right without Sub-Lessor's consent to make, as
Sub-Lessee's sole cost and expense, any alterations, additions, or improvements
to the leased premises. Sub-Lessee shall obtain all approvals required for any
alterations, additions or improvements made by Sub-Lessee to the leased
premises, including approvals of FAA as required by the Indenture between the
United States of America and the City of Big Spring, Texas, dated October 6,
1978.
PROPERTY OF SUB-LESSOR
All alterations, additions, or improvements made by Sub-Lessee shall
become the property of Sub-Lessor at the termination of this Amended Sublease,
and Sub-Lessee shall have no obligation to remove such alterations, additions or
improvements unless they were made in violation of the preceding paragraph.
ARTICLE VII. SIGNS
Sub-Lessee shall have the right to erect signs on any portion of the
leased premises, including, but not limited to, the exterior walls of the
premises, subject to applicable laws, ordinances, and regulations. Sub-Lessee
must remove all signs at the termination of this Amended Sublease and repair any
damage resulting from the erection or removal of the signs.
ARTICLE VIII. MECHANIC'S LIEN
Sub-Lessee will not cause any mechanic's lien or liens to be placed upon
the leased premises or improvements on the premises. If such a mechanic's lien
is filed on the leased premises, Sub-Lessee will promptly pay the lien; provided
that Sub-Lessee shall have the right to contest in good faith and with
reasonable diligence the validity of any such lien or claimed lien if Sub-
Lessee shall post the appropriate bond or give to Sub-Lessor such security as
may be deemed reasonably satisfactory to Sub-Lessor to insure payment thereof
(and to prevent any sale, foreclosure, or forfeiture of the leased premises by
reason of non-payment thereof) and provided further, that on final determination
of the lien or claim for lien, Sub-Lessee shall immediately pay any judgment
rendered, with all proper costs and charges, and shall have the lien released
and the judgment satisfied.
ARTICLE IX. INSURANCE AND INDEMNITY
PROPERTY INSURANCE
Sub-Lessee shall, at its own expense, during the term of this Amended
Sublease, keep all buildings and improvements on the leased premises insured
against loss or damage by fire or theft, with extended coverage to include
direct loss by windstorm, hail, explosion, riot, or riot attending a strike,
civil commotion, aircraft, vehicles, and smoke, in the aggregate amount of not
less than 100% of replacement value. LIABILITY INSURANCE AND INDEMNITY
Sub-Lessee, at its own expense, shall provide and maintain in force during the
term of this Amended Sublease, primary and excess liability insurance coverage
with limits in the amount of FIVE MILLION DOLLARS ($5,000,000.00), covering and
naming both Sub- Lessor and Sub-Lessee as insureds, for any liability for
property damage or personal injury arising as a result of Sub-Lessee's
occupation of and operation on the leased premises. This insurance is to be
carried by one or more insurance companies authorized to transact business in
Texas and approved by Sub-Lessor.
Sub-Lessee agrees to indemnify and hold Sub-Lessor harmless from and
against all judgments, costs, damages and expenses which may accrue against, be
charged to or recovered from Sub-Lessor by reason or on account of damage to the
property of, injury to or death of any person, arising from the use and/or
occupancy of the leased premises by Sub-Lessee, Sub-Lessee's agents, employees,
contractors and subcontractors, and/or from the use and/or occupancy by
Sub-Lessee, Sub-Lessee's agents, employees, contractors, and subcontractors of
any appurtenant facilities or property of Sub-Lessor, and/or from the use and/or
occupancy by Sub-Lessee, Sub-Lessee's agents, employees, contractors, and
subcontractors of any facilities or property of Sub-Lessor, provided that
Sub-Lessor shall give Sub-Lessee prompt and timely notice of any claim made or
suit instituted which, in any way, affects Sub-Lessee or its insurer, and
Sub-Lessee or its insurer shall have the right to compromise and defend the same
to the extent of their own interest; provided, further, that any failure by
Sub-Lessor to give Sub-Lessee the foregoing notice shall not affect the
liability of Sub-Lessee or its insurer hereunder to Sub-Lessor if Sub-Lessee has
received actual timely notice of said claim or suit. Any final judgment rendered
against Sub-Lessor for any cause for which Sub-Lessee is liable hereunder shall
be conclusive against Sub-Lessee as to liability and amount.
INSURANCE CERTIFICATES AND NOTIFICATION OF CANCELLATION
Sub-Lessee shall furnish Sub-Lessor with certificates of all insurance
required by this Article. Sub-Lessee shall notify Sub- Lessor at least 10 days
prior to any cancellation of any insurance policy required by this Lease.
WAIVER OF INSURANCE REQUIREMENTS
So long as the Secondary Sublease between Sub-Lessor and Sub-Lessee
remains in effect, Sub-Lessor hereby waives Sub-Lessee's obligation to carry the
insurance specified in this Article IX.
ARTICLE X. DAMAGE OR DESTRUCTION OF PREMISES
NOTICE TO SUB-LESSOR
If the leased premises, or any structures or improvements on the leased
premises, should be damaged or destroyed by fire, tornado, or other casualty,
Sub-Lessee shall give immediate written notice of the damage or destruction to
Sub-Lessor, including a description of the damage and, as far as known to
Sub-Lessee, the cause of the damage.
DESTRUCTION OF PREMISES
If the structures or improvements on the leased premises should be
totally or partially destroyed by fire, tornado, or other casualty, then the
Sub-Lessee may elect either to repair or replace the same to the extent of the
insurance proceeds available (in which case the rent payable hereunder shall be
abated until such time as the Sub-Lessee can reasonably resume operation of its
business, and the term hereof shall be extended for a period equal to the rent
abatement period), or not to repair or replace the same and to terminate this
Amended Sublease, effective as of the date of written notification as provided
in the preceding paragraph. In the event that Sub-Lessee elects to terminate
this Amended Sublease, all property insurance proceeds shall be allocated
between Sub-Lessor and Sub-Lessee. The allocation shall be based on a yearly
proration over a 35 year period (e.g., if the casualty occurs in year three (3)
of the lease term, Sub-Lessor will receive 3/35 of the proceeds and Sub-Lessee
will receive 32/35 of the proceeds).
ARTICLE XI. DEFAULT
DEFAULT BY SUB-LESSEE
If Sub-Lessee shall allow the rent to be in arrears more than twenty
(20) days after written notice of such delinquency, or shall remain in default
under any other condition of this Amended Sublease for a period of thirty (30)
days after written notice from Sub-Lessor (provided that, if such default is not
reasonably capable of cure within said 30-day period, Sub-Lessee shall not be
deemed in default so long as Sub-Lessee has commenced to cure the default within
said 30-day period and diligently prosecutes such cure to completion),
Sub-Lessor may at its option, without further notice to Sub-Lessee, terminate
this Amended Sublease or, in the alternative, Sub-Lessor may, in addition to any
other remedies provided by law, re-enter and take possession of the leased
premises and remove all persons and property without being deemed guilty in any
manner of trespass and relet the leased premises, or any part of the leased
premises, for all or any part of the remainder of the Amended Sublease term, to
a party satisfactory to Sub-Lessor and at such monthly rental as Sub-Lessor may
with reasonable diligence be able to secure.
SUB-LESSOR'S LIEN
It is expressly agreed that, in the event of default by Sub-Lessee in
the payment of rent or any other sum due from Sub-Lessee to Sub-Lessor under the
terms of this Amended Sublease, Sub-Lessor shall have a lien upon all fixtures,
chattels, or other property of any description belonging to Sub-Lessee that are
placed in, or become a part of, the leased premises as security for rent due and
to become due for the remainder of the current Amended Sublease term and any
other sum due from Sub-Lessee to Sub-Lessor. This lien shall not be in lieu of,
or in any way affect, the statutory landlord's lien given by law but shall be in
addition to that lien, and Sub-Lessee grants to Sub-Lessor a security interest
in all of Sub-Lessee's property placed in or on the leased premises for purposes
of this contractual lien. This shall not prevent the sale by Sub-Lessee of any
merchandise or property in the ordinary course of business free of such lien. In
the event of default by Sub-Lessee, and in the event Sub-Lessor exercises the
option to terminate the Amended Sublease hold, re-enter, and relet the premises
as provided in the preceding paragraph, then Sub-Lessor, after giving reasonable
notice to Sub-Lessee of the intent to take possession and giving an opportunity
for a hearing on the matter, may take possession of all of Sub-Lessee's property
on the premises and sell it at public or private sale after giving Sub-Lessee
reasonable notice of the time and place of any public sale or of the time after
that any private sale is to be made, for cash or on credit, for such prices and
terms as Sub-Lessor deems best, with or without having the property present at
the sale. The proceeds of the sale shall be applied first to the necessary and
proper expense of removing, storing, and selling such property, then to the
payment of any rent due or to become due under this Amended Sublease, with the
balance, if any, to be paid to Sub-Lessee.
DEFAULT BY SUB-LESSOR
If Sub-Lessor defaults in the performance of any term, covenant, or
condition required to be performed by it under this agreement, and such default
continues for more than thirty (30)
days after written notice to Sub-Lessor (provided that, if such default is not
reasonably capable of cure within said 30-day period, Sub-Lessor shall not be
deemed in default so long as Sub- Lessor has commenced to cure the default
within said 30-day period and diligently prosecutes such cure to completion),
Sub-Lessee may elect to do either one of the following:
a. Sub-Lessee may remedy such default by any necessary
action and, in connection with such remedy, may pay any
reasonable expenses and employ counsel. All sums
expended, or obligations incurred, by Sub-Lessee in
connection with remedying Sub-Lessor's default shall be
paid by Sub-Lessor to Sub-Lessee on demand and, on
failure of such reimbursement, Sub-Lessee may, in
addition to any other right or remedy that Sub-Lessee may
have, deduct these costs and expenses from rent
subsequently becoming due under this Amended Sublease.
b. Sub-Lessee may terminate this Amended Sublease on giving at least
sixty (60) days' written notice to Sub-Lessor of such intention.
In the event Sub-Lessee elects this option, the Amended Sublease
will be terminated on the date designated in Sub-Lessee's notice,
unless Sub-Lessor has cured the default prior to expiration of
the sixty (60) day period.
CUMULATIVE REMEDIES
All rights and remedies of Sub-Lessor and Sub-Lessee under this Article
shall be cumulative, and none shall exclude any other right or remedy provided
by law or by any other provision of this Amended Sublease. All such rights and
remedies may be exercised and enforced concurrently and whenever, and as often,
as occasion for their exercise arises.
WAIVER OF BREACH
A waiver by either Sub-Lessor or Sub-Lessee of a breach of this Amended
Sublease by the other party does not constitute a continuing waiver or a waiver
of any subsequent breach of the Amended Sublease.
ARTICLE XII. INSPECTION BY SUB-LESSOR
Sub-Lessee shall permit Sub-Lessor and Sub-Lessor's agents,
representatives, and employees to enter into and on the leased premises at all
reasonable times, agreed to by Sub-Lessee in advance, for the purpose of
inspection or any other purpose necessary to protect Sub-Lessor's interest in
the leased premises or to perform Sub-Lessor's duties under this Amended
Sublease. Said inspections shall have prior approval by management of the
facility, to enable management to provide all security precautions necessary.
ARTICLE XIII. ASSIGNMENT AND SUBLEASE
ASSIGNMENT AND SUBLETTING BY SUB-LESSEE
Sub-Lessee may sublet, assign, encumber, or otherwise transfer this
Amended Sublease, or any right or interest in this Amended Sublease or in the
leased premises or the improvements on the leased premises, without the prior
written consent of Sub-Lessor. Any assignment of this Amended Sublease by
Sub-Lessee must be concurrent with an assignment by Sub-Lessee of all of its
interest under the Base Lease and Secondary Sublease (as hereinafter defined).
ASSIGNMENT AND SUBLETTING BY SUB-LESSOR
Sub-Lessor shall have the right to assign its rights under this Amended
Sublease to anyone; provided, however, that Sub-Lessor must first have obtained
the written consent of the Sub-Lessee, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, Sub-Lessor may, without Sub-Lessee's
consent, secure financing or general lines of credit, and as security thereof,
Sub- Lessor shall have the right encumber its interest in this Lease and enter
into such leasehold mortgage loan documents as may be requested by its lenders.
ARTICLE XIV. CONDEMNATION
If during the term of this Amended Sublease or any extension thereof,
all or any part of the leased premises shall be taken for any public or
quasi-public use under any governmental law, ordinance, or regulation, or by
right of eminent domain, or should be sold to the condemning authority under
threat of condemnation, Sub-Lessee may terminate this Amended Sublease by giving
written notice to Sub-Lessor within thirty (30) days after possession of the
condemned portion is taken by the entity exercising the power of condemnation.
In the event that Sub-Lessee does not or fails to exercise its right to
terminate this Amended Sublease, Sub-Lessee shall (to the extent of available
condemnation proceeds) restore and rebuild the building and other improvements
situated on the leased premises to make them reasonably tenantable for the uses
for which they are leased (in which case the rent payable hereunder shall be
abated until such time as the Sub-Lessee can reasonably resume operation of its
business, and the term hereof shall be extended for a period equal to the rent
abatement period). Any excess proceeds shall be allocated between Sub-Lessor and
Sub- Lessee in the same manner as provided in the last sentence of this
paragraph. In the event that sub-Lessee exercises its right to terminate this
Amended sublease, all condemnation proceeds shall be allocated between
Sub-Lessor and Sub-Lessee. The allocation shall be based on a yearly proration
over a 35 year period (e.g., if the condemnation occurs in year three (3) of the
lease term, Sub-Lessor shall receive 3/35 of the proceeds and Sub-Lessee shall
receive 32/35 of the proceeds).
ARTICLE XV. MISCELLANEOUS
TAXES
Any and all ad valorem or property taxes on the leased premises or the
improvements or personal property located thereon shall be the responsibility of
Sub-Lessee, and shall be paid by Sub-Lessee.
ESCAPE CLAUSE
***(DELETED)***
NOTICES AND ADDRESSES
All notices required under this Amended Sublease must be given by
certified mail, return receipt requested, addressed to the proper party, at the
following addresses:
Sub-Lessor:
Ed Davenport
c/o Midtex Detentions, Inc.
ATTENTION: Johnny Rutherford
610 Main, Suite A
Big Spring, TX 79720
Sub-Lessee:
City Manager
City of Big Spring, Texas
310 Nolan
Big Spring, TX 79720
Either party may change the address to which notices are to be sent it by giving
the other party notice of the new address in the manner provided in this
section. Additionally, Sub-Lessee agrees to provide a copy of any notice to
Sub-Lessor to any mortgagee of Sub-Lessor for which it has been provided an
address and Sub-Lessee agrees that any such mortgagee shall be afforded the same
rights to cure any default of Sub-Lessor as are available to Sub-Lessor under
this Amended Sublease.
OPTION TO PURCHASE IMPROVEMENTS
***(DELETED)***
AMENDMENT
No amendment, modification, or alteration of the terms of this agreement
shall be binding unless it is in writing, dated subsequent to the date of this
agreement, and duly executed by the parties to this agreement.
RIGHTS AND REMEDIES CUMULATIVE
The rights and remedies provided by this Amended Sublease agreement are
cumulative, and the use of any one right or remedy by either party shall not
preclude or waive that party's right to use any or all other remedies. The
rights and remedies provided in this Amended Sublease are in addition to any
other rights the parties may have by law, statute, ordinance, or otherwise.
ATTORNEY'S FEES AND COSTS
If, as a result of a breach of this agreement by either party, the other
party employs an attorney or attorneys to enforce its rights under this Amended
Sublease, then the breaching or default ing party agrees to pay the other party
the reasonable attorney's fees and costs incurred to enforce the Amended
Sublease.
FORCE MAJEURE
Neither Sub-Lessor nor Sub-Lessee shall be required to perform any term,
condition, or covenant in this Amended Sublease so long as such performance is
delayed or prevented by force majeure, which shall mean acts of God, material or
labor restrictions by any governmental authority, civil riot, floods, and any
other cause not within the control of Sub-Lessor or Sub-Lessee and which by the
exercise of due diligence Sub-Lessor or Sub-Lessee is unable, wholly or in part,
to prevent or overcome.
TIME OF ESSENCE
Time is of the essence of this agreement.
PRIOR AGREEMENTS SUPERSEDED
This agreement amends, modifies and supersedes, from and after the
execution hereof, the Sublease Agreement with Option to Purchase Improvements,
BSCC Unit III, covering the leased premises, dated February 18, 1994, between Ed
Davenport as Sub-Lessor, and the City of Big Spring, Texas, as Sub-Lessee.
CROSS-DEFAULT
Concurrent with the execution of this Amended Sublease, (i) Sub-Lessor
and Sub-Lessee have entered a Secondary Sublease covering the leased premises
(the "Secondary Sublease"), (ii) Sub- Lessor has assigned its interest in this
Amended Sublease, the Secondary Sublease and the Base Lease (defined below) to
Cornell Corrections of Texas, inc. ("Cornell"), and (iii) Sub-Lessee and Cornell
have entered into an Operating Agreement (the "Operating Agreement"), wherein
Sub-Lessee has engaged Cornell to operate the correctional facility located on
the leased premises. Sub-Lessor and Sub-Lessee hereby agree that a default by
Sub-Lessee under the Base Lease, the Secondary Sublease or the Operating
Agreement shall constitute a default by Sub-Lessee under this Amended sublease,
and following notice and the expiration of any curative rights specified in the
Operating Agreement, the Secondary Sublease or the Base Lease, as the case may
be, Sub-Lessor shall have the right to terminate this Amended sublease by
delivering written notice of termination to Sub-Lessee. "Base Lease" refers to
that certain Lease Agreement dated the 18th day of February, 1994, by and
between Sub-Lessor and Sub-Lessee and all amendments thereto.
The undersigned Sub-Lessor and Sub-Lessee execute this Amended Sublease
Agreement as of the 1st day of July, 1996, at ___________, ________________
County, Texas.
Sub-Lessor:
-----------------------------------
ED DAVENPORT
Sub-Lessee:
THE CITY OF BIG SPRING, TEXAS,
BY:________________________________
Tim Blackshear, Mayor
ATTEST:
- -------------------------------
Tom Ferguson, City Secretary
THE STATE OF TEXAS ss.
COUNTY OF ________ ss.
This instrument was acknowledged before me on the ______ day of
_________, 1996, by ED DAVENPORT.
-----------------------------------
Notary Public, State of Texas
THE STATE OF TEXAS ss.
COUNTY OF ________ ss.
This instrument was acknowledged before me on the ______ day of
____________, 1996, by TIM BLACKSHEAR as Mayor of the CITY OF BIG SPRING, TEXAS.
-----------------------------------
Notary Public, State of Texas
EXHIBIT "A"
Attached to Amended Sublease Agreement between Ed Davenport,sub-leessor,
and The City of Big Spring, Texas, Sub-Lessee
[Legal Description]
ASSIGNMENT AND ASSUMPTION OF LEASES
THIS ASSIGNMENT AND ASSUMPTION OF LEASES (this "Assignment") is made this
1st day of July, 1996, from ED DAVENPORT ("Assignor") to CORNELL CORRECTIONS OF
TEXAS, INC., a Delaware corporation ("Assignee"), as follows:
RECITALS
A. Assignor is a party to those certain real estate leases (collectively,
the "Leases") between Assignor and The City of Big Spring (the "City")
listed below:
(1) Lease Agreement by and between the City, as Lessor, and Assignor,
as Lessee, dated July 1, 1996
(2) Industrial Park Lease Agreement by and between the City, as
Lessor, and Assignor, as Lessee, dated August 7, 1990, as amended
by Addendum, dated November 26, 1990
(3) Amended Sublease Agreement by and between Assignor, as Sub-Lessor,
and the City, as Sub-Lessee, dated July 1, 1996
(4) Secondary Sublease Agreement by and between the City, as Secondary
Sub-Lessor, and Assignor, as Secondary Sub-Lessee, dated July 1,
1996
(5) Lease by and between the City, as Lessor, and Assignor, as Lessee,
dated February 18, 1994, as amended by Lease Amendment, dated as
of October 1, 1994
(6) Amended Sublease Agreement by and between Assignor, as Sub-Lessor,
and the City, as Sub-Lessee, dated July 1, 1996
(7) Secondary Sublease Agreement by and between the City, as Secondary
Sub-Lessor, and Assignor, as Secondary Sub-Lessee, dated July 1,
1996
B. Assignor desires to assign all of its right, title and interest in each
of the Leases to Assignee.
C. Assignee desires to assume the Assignor's obligations under each of the
Leases.
AGREEMENT
Now, therefore, for and in consideration of Ten Dollars ($10.00) and
other good and valuable consideration, in hand paid by Assignee to Assignor, the
receipt and sufficiency of which are hereby acknowledged and confessed,
effective as of the date hereof, Assignor hereby assigns to Assignee all right,
title and interest Assignor may have in and to the Leases. From and after the
date hereof, Assignee hereby agrees to be bound by all the terms and provisions
of the Leases and hereby assumes and agrees to pay and perform all obligations
of Assignor under the Leases. Assignee agrees to indemnify, defend and save
harmless Assignor from any and all claims and losses accruing from and after the
date hereof with respect to the Leases.
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment
and Assumption of Leases as of the date set forth above.
ASSIGNOR:
ED DAVENPORT
/s/ ED DAVENPORT
ASSIGNEE:
CORNELL CORRECTIONS OF TEXAS, INC.
By /s/ DAVID M. CORNELL
David M. Cornell,
President
JOINDER
The City of Big Spring (the "City") hereby executes this joinder to
acknowledge the City's release of Assignor from any and all liability pursuant
to the Leases.
Dated as of July 9, 1996.
THE CITY OF BIG SPRING
By /s/ TIM BLACKSHEAR
Tim Blackshear, Mayor
City of Big Spring, Texas
Attest:
/s/ TOM FURGUSON
Tom Ferguson, City Secretary
EXHIBIT 10.23
EXECUTION COPY
************************************************************
CORNELL CORRECTIONS, INC.
and
SUBSIDIARY GUARANTORS
-----------------------------
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of July 3, 1996
------------------------------
INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION,
as Agent
************************************************************
-1-
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it
is attached but is inserted for convenience of reference only.
PAGE
Section 1. Definitions and Accounting Matters............................... 1
1.01 Certain Defined Terms.......................................... 1
1.02 Accounting Terms and Determinations............................ 25
1.03 Classes and Types of Loans..................................... 26
Section 2. Commitments, Loans, Notes and Prepayments........................ 26
2.01 Loans.......................................................... 26
2.02 Borrowings of Loans............................................ 28
2.03 Changes of Commitments......................................... 28
2.04 Commitment Fee................................................. 29
2.05 Lending Offices................................................ 29
2.06 Several Obligations; Remedies Independent...................... 29
2.07 Notes.......................................................... 29
2.08 Optional Prepayments and Conversions or
Continuations of Loans..................................... 30
2.09 Mandatory Prepayments and Reductions of
Commitments................................................ 31
2.10 Letters of Credit.............................................. 35
Section 3. Payments of Principal and Interest............................... 40
3.01 Repayment of Loans and Other Amounts........................... 40
3.02 Interest....................................................... 42
Section 4. Payments; Pro Rata Treatment; Computations; Etc.
.................................................................... 42
4.01 Payments....................................................... 42
4.02 Pro Rata Treatment............................................. 43
4.03 Computations................................................... 44
4.04 Minimum Amounts................................................ 44
4.05 Certain Notices................................................ 44
4.06 Non-Receipt of Funds by the Agent.............................. 45
4.07 Sharing of Payments, Etc....................................... 46
Section 5. Yield Protection, Etc............................................ 48
5.01 Additional Costs............................................... 48
5.02 Limitation on Types of Loans................................... 51
5.03 Illegality..................................................... 52
5.04 Treatment of Eurodollar Loans.................................. 52
5.05 Compensation................................................... 53
5.06 Substitution of Lenders........................................ 53
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PAGE
5.07 Additional Costs in Respect of Letters of Credit............... 54
Section 6. Guarantee........................................................ 55
6.01 The Guarantee.................................................. 55
6.02 Obligations Unconditional...................................... 55
6.03 Reinstatement.................................................. 56
6.04 Subrogation.................................................... 56
6.05 Remedies....................................................... 57
6.07 Continuing Guarantee........................................... 57
6.08 Rights of Contribution......................................... 57
6.09 General Limitation on Guarantee Obligations.................... 58
Section 7. Conditions Precedent............................................. 59
7.01 Effectiveness of Amendment and Restatement..................... 59
7.02 CapEx Loans.................................................... 63
7.03 Initial and Subsequent Extensions of Credit.................... 67
Section 8. Representations and Warranties................................... 68
8.01 Corporate Existence............................................ 68
8.02 Financial Condition............................................ 68
8.03 Litigation..................................................... 69
8.04 No Breach...................................................... 69
8.05 Action......................................................... 69
8.06 Approvals...................................................... 70
8.07 Use of Credit.................................................. 70
8.08 ERISA.......................................................... 70
8.09 Taxes.......................................................... 70
8.10 Investment Company Act......................................... 70
8.11 Public Utility Holding Company Act............................. 70
8.12 Material Agreements and Liens.................................. 71
8.13 Environmental Matters.......................................... 71
8.14 Capitalization................................................. 73
8.15 Subsidiaries, Etc.............................................. 74
8.16 Title to Assets................................................ 74
8.17 True and Complete Disclosure................................... 75
8.18 Real Property.................................................. 75
Section 9. Covenants of the Company......................................... 75
9.01 Financial Statements; Etc...................................... 75
9.02 Litigation..................................................... 80
9.03 Existence, Etc................................................. 80
9.04 Insurance...................................................... 81
9.05 Prohibition of Fundamental Changes............................. 84
9.06 Limitation on Liens............................................ 84
9.07 Indebtedness................................................... 85
9.08 Investments.................................................... 86
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PAGE
9.09 Dividend Payments.............................................. 87
9.10 EBITDA Ratio................................................... 87
9.11 Net Worth...................................................... 88
9.12 EBITDA......................................................... 88
9.13 Interest Coverage Ratio........................................ 88
9.14 Fixed Charges Ratio............................................ 89
9.15 ........................................................... 89
9.16 Leverage Ratio................................................. 89
9.17 Sale Lease-back Transactions................................... 89
9.18 Discount of Accounts........................................... 89
9.19 Interest Rate Protection Agreements............................ 89
9.20 Seller Subordinated Debt....................................... 90
9.21 Lines of Business.............................................. 90
9.22 Transactions with Affiliates................................... 90
9.23 Use of Proceeds................................................ 91
9.24 Certain Obligations Respecting Subsidiaries.................... 91
9.25 Modifications of Certain Documents............................. 91
Section 10. Events of Default............................................... 94
Section 11. The Agent....................................................... 99
11.01 Appointment, Powers and Immunities............................ 99
11.02 Reliance by Agent.............................................100
11.03 Defaults......................................................100
11.04 Rights as a Lender............................................100
11.05 Indemnification...............................................101
11.06 Non-Reliance on Agent and Other Lenders.......................101
11.07 Failure to Act................................................102
11.08 Resignation or Removal of Agent...............................102
11.09 Agency Fee....................................................102
11.10 Consents under Other Basic Documents..........................103
Section 12. Miscellaneous...................................................103
12.01 Waiver........................................................103
12.02 Notices.......................................................103
12.03 Expenses, Etc.................................................104
12.04 Amendments, Etc...............................................105
12.05 Successors and Assigns........................................106
12.06 Assignments and Participations................................106
12.07 Survival......................................................108
12.08 Captions......................................................108
12.09 Counterparts..................................................108
12.10 Governing Law; Submission to Jurisdiction.....................108
12.11 Waiver of Jury Trial..........................................109
12.12 Confidentiality...............................................109
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PAGE
SCHEDULE I - Material Agreements and Liens
SCHEDULE II - Environmental Matters
SCHEDULE III - Subsidiaries and Investments
SCHEDULE IV - Real Property
SCHEDULE V - Capitalization, Equity Rights and Registration Rights
SCHEDULE VI - Existing Property, Indebtedness and Liabilities
of Cornell Cox Group, L.P.
EXHIBIT A-1 - Form of Revolving Credit Note
EXHIBIT A-2 - Form of Term Loan Note
EXHIBIT A-3 - Form of CapEx Loan Note
EXHIBIT A-4 - Form of Repurchase Loan Note
EXHIBIT B-1 - Form of Security Agreement
EXHIBIT B-2 - Form of Security Agreement Amendment
EXHIBIT C-1 - Form of PRO FORMA Financial Statements
EXHIBIT C-2 - Form of Budget
EXHIBIT C-3 - Form of Monthly Report
EXHIBIT D-1 - Form of Opinion of New York and California counsel to
the Obligors
EXHIBIT D-2 - Form of Opinion of Texas Counsel to the Obligors
EXHIBIT E - Form of Confidentiality Agreement
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AMENDED AND RESTATED CREDIT AGREEMENT dated as of July 3, 1996
among: CORNELL CORRECTIONS, INC., a corporation duly organized and validly
existing under the laws of the State of Delaware (the "COMPANY"); each of the
Subsidiaries of the Company identified under the caption "SUBSIDIARY GUARANTORS"
on the signature pages hereto (individually, a "SUBSIDIARY GUARANTOR" and,
collectively, the "SUBSIDIARY GUARANTORS"; and the Subsidiary Guarantors
collectively with the Company, the "OBLIGORS"); each of the lenders that is a
signatory hereto identified under the caption "LENDERS" on the signature pages
hereto or that, pursuant to Section 12.06(b) hereof, shall become a "Lender"
hereunder (individually, a "LENDER" and, collectively, the "LENDERS"); and
INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, a Delaware corporation,
as agent for the Lenders (in such capacity, together with its successors in such
capacity, the "AGENT").
The Company, the Agent and the Lenders are parties to a Credit
Agreement, dated as of March 14, 1995 (the "ORIGINAL CREDIT AGREEMENT"), and the
Company, the Agent and the Lenders wish to increase the aggregate amount of the
Commitments under the Original Credit Agreement from $15,000,000 to $35,000,000
and to amend the Original Credit Agreement in certain other respects.
Accordingly, the Company, the Agent and the Lenders agree that, subject to the
terms and conditions of this Agreement, the Original Credit Agreement is hereby
amended and restated in its entirety to read as follows:
Section 1. DEFINITIONS AND ACCOUNTING MATTERS.
1.01 CERTAIN DEFINED TERMS. As used herein, the following terms
shall have the following meanings (all terms defined in this Section 1.01 or in
other provisions of this Agreement in the singular to have the same meanings
when used in the plural and VICE VERSA):
"AFFILIATE" shall mean any Person that directly or indirectly
controls, or is under common control with, or is controlled by, the Company and,
if such Person is an individual, any member of the immediate family (including
parents, spouse, children and siblings) of such individual and any trust whose
principal beneficiary is such individual or one or more members of such
immediate family and any Person who is controlled by any such member or trust.
As used in this definition, "CONTROL" (including, with its correlative meanings,
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities
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or partnership or other ownership interests, by contract or otherwise).
Notwithstanding the foregoing, (a) no individual shall be an Affiliate solely by
reason of his or her being a director, officer or employee of the Company or any
of its Subsidiaries, (b) none of the Wholly Owned Subsidiaries of the Company
shall be Affiliates and (c) neither the Agent nor any of the Lenders shall be an
Affiliate.
"APPLICABLE LENDING OFFICE" shall mean, for each Lender and for
each Type of Loan, the "Lending Office" of such Lender (or of an affiliate of
such Lender) designated for such Type of Loan on the signature pages hereof or
such other office of such Lender (or of an affiliate of such Lender) as such
Lender may from time to time specify to the Agent and the Company as the office
by which its Loans of such Type are to be made and maintained.
"APPLICABLE MARGIN" shall mean:
(a) with respect to Term Loans that are Base Rate
Loans, 1-1/2% per annum;
(b) with respect to Term Loans that are
Eurodollar Loans, 3-1/2% per annum;
(c) with respect to Revolving Credit Loans that
are Base Rate Loans, 1% per annum;
(d) with respect to Revolving Credit Loans that
are Eurodollar Loans, 3% per annum;
(e) with respect to CapEx Loans that are Base
Rate Loans, 1-3/4% per annum;
(f) with respect to CapEx Loans that are
Eurodollar Loans, 3-3/4% per annum; and
(g) with respect to Repurchase Loans, (x) during the
period ending on December 31, 1996, 4-1/4% per annum and (y)
during each fiscal quarter of the Company occurring thereafter,
1/2 of 1% PLUS the "Applicable Margin" for Repurchase Loans for
the immediately preceding fiscal quarter of the Company.
"BANKRUPTCY CODE" shall mean the Federal Bankruptcy Code of 1978,
as amended from time to time.
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"BASE RATE" shall mean, for any day, a rate per annum equal to
the higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the
Prime Rate for such day. Each change in any interest rate provided for herein
based upon the Base Rate resulting from a change in the Base Rate shall take
effect at the time of such change in the Base Rate.
"BASE RATE LOANS" shall mean Loans that bear interest at rates
based upon the Base Rate.
"BASIC DOCUMENTS" shall mean, collectively, this
Agreement, the Notes, the Security Documents, the Letter of
Credit Documents and the Fee Letter.
"BIG SPRINGS IGA CONTRACT" shall mean the Intergovernmental
Agreement (Contract No. IGA-023-9) between the City of Big Springs and the
Federal Bureau of Prisons to privately operate three intermediate term detention
facilities.
"BUSINESS DAY" shall mean (a) any day on which commercial banks
are not authorized or required to close in New York City or Houston, Texas and
(b) if such day relates to a borrowing of, a payment or prepayment of principal
of or interest on, a Conversion of or into, or an Interest Period for, a
Eurodollar Loan or a notice by the Company with respect to any such borrowing,
payment, prepayment, Conversion or Interest Period, any day on which dealings in
Dollar deposits are carried out in the London interbank market.
"CAPEX LOAN COMMITMENT" shall mean, for each Lender, the
obligation of such Lender to make one or more CapEx Loans in an aggregate amount
up to but not exceeding the amount set forth opposite the name of such Lender on
the signature pages hereof under the caption "CapEx Loan Commitment" (as the
same may be reduced from time to time pursuant to Section 2.03 hereof). The
original aggregate principal amount of the CapEx Loan Commitments is $6,950,000.
"CAPEX LOAN COMMITMENT PERCENTAGE" shall mean, with respect to
any Lender, the ratio of (a) the amount of the CapEx Loan Commitment of such
Lender to (b) the aggregate amount of the CapEx Loan Commitments of all of the
Lenders.
"CAPEX LOAN COMMITMENT TERMINATION DATE" shall mean
December 31, 1997.
"CAPEX LOAN NOTES" shall mean the promissory notes
provided for by Section 2.07(c) hereof and all promissory notes
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delivered in substitution or exchange therefor, in each case as the same shall
be modified and supplemented and in effect from time to time.
"CAPEX LOAN PRINCIPAL PAYMENT DATES" shall mean the Quarterly
Dates, commencing with March 31, 1998 through and including December 31, 2002.
"CAPEX LOANS" shall mean the loans provided for by Section
2.01(c) hereof, which may be Base Rate Loans and/or Eurodollar Loans.
"CAPITAL EXPENDITURES" shall mean, for any period, expenditures
(including, without limitation, the aggregate amount of Capital Lease
Obligations incurred during such period) made by the Company or any of its
Subsidiaries to acquire or construct fixed assets, plant, furniture, fixtures
and equipment (including renewals, improvements and replacements thereof, but
excluding repairs made in the ordinary course of business) during such period
computed in accordance with GAAP.
"CAPITAL LEASE OBLIGATIONS" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"CASUALTY EVENT" shall mean, with respect to any Property of any
Person, any loss of or damage to, or any condemnation or other taking of, such
Property for which such Person or any of its Subsidiaries receives insurance
proceeds, or proceeds of a condemnation award or other compensation.
"CHARTERHOUSE GROUP" shall mean Charterhouse Group International
Inc. and each other Person controlled by Charterhouse Group International Inc.
As used in this definition, "CONTROLLED BY" shall mean the possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise).
"CLASS" shall have the meaning assigned to such term in
Section 1.03 hereof.
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"CLOSING DATE" shall mean the date, no later than July 12, 1996,
on which the initial Loan hereunder is made.
"CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"COLLATERAL ACCOUNT" shall have the meaning assigned to such term
in Section 4.1 of the Security Agreement.
"COMMITMENTS" shall mean the Revolving Credit
Commitments, the Term Loan Commitments, the CapEx Commitments and
the Repurchase Loan Commitments.
"CONTINUE", "CONTINUATION" and "CONTINUED" shall refer to the
continuation pursuant to Section 2.08 hereof of a Eurodollar Loan from one
Interest Period to the next Interest Period.
"CONVERT", "CONVERSION" and "CONVERTED" shall refer to a
conversion pursuant to Section 2.08 hereof of one Type of Loan into another Type
of Loan, which may be accompanied by the transfer by a Lender (at its sole
discretion) of a Loan from one Applicable Lending Office to another.
"CONVERTIBLE SUBORDINATED NOTE" shall have the meaning assigned
to such term in Section 7.01(i)(i) hereof.
"CORRECTIONAL AND DETENTION FACILITY CONTRACT" shall mean any
contract with a municipal, state or federal government, or agency,
instrumentality or political subdivision thereof, relating to the management by
the Company or its Subsidiaries of a correctional and/or detention facility, as
amended or modified from time to time.
"DEBT SERVICE" shall mean, for any period, the sum, for the
Company and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following: (a) all payments of
principal of Indebtedness (including, without limitation, the principal
component of any payments in respect of Capital Lease Obligations) scheduled to
be made during such period (PROVIDED that the $1,200,000 principal payment in
respect of the Term Loans due in December 1996 shall be deemed to be due as
follows: $600,000 in September 1996 and $600,000 in December 1996) PLUS (b) all
Interest Expense for such period.
-5-
"DEFAULT" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.
"DILLON READ" shall mean Dillon Read & Co., Inc. and any Person
for which Dillon, Read & Co., Inc. serves as investment manager or for which it
has investment discretion, PROVIDED THAT (and for so long as) Dillon, Read &
Co., in such capacity, has the power to exercise such Person's voting rights
with respect to shares of the Company.
"DISPOSITION" shall mean any sale, assignment, transfer or other
disposition of any Property (whether now owned or hereafter acquired) by the
Company or any of its Subsidiaries to any other Person excluding (i) any sale,
assignment, transfer or other disposition of any Property sold or disposed of in
the ordinary course of business and on commercially reasonable terms and (ii)
the transfer to Arthur McDonald, Barbara McDonald or Fresno Pacific College,
upon receipt thereof, of up to $120,000 (in aggregate) of proceeds of a tax
refund for Eclectic Communications, Inc., for the period from December 20, 1993
to March 31, 1994.
"DIVIDEND PAYMENT" shall mean dividends (in cash, Property or
obligations) on, or other payments or distributions on account of, or the
setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any shares of any
class of stock of the Company or of any warrants, options or other rights to
acquire the same (or to make any payments to any Person, such as "phantom stock"
payments, where the amount thereof is calculated with reference to the fair
market or equity value of the Company or any of its Subsidiaries), but excluding
dividends payable solely in shares of common stock of the Company.
"DOLLARS" and "$" shall mean lawful money of the United
States of America.
"EBITDA" shall mean, for any period, the sum of the
following for the Company and its Subsidiaries (determined
without duplication in accordance with GAAP):
(a) net income for such period, LESS extraordinary gains for such
period to the extent included in net income for such period, PLUS
(b) Interest Expense for such period, PLUS
-6-
(c) provisions for federal, state, local and foreign income taxes
(other than taxes on extraordinary gains), whether paid or deferred,
made during such period, to the extent deducted in determining net
income for such period, PLUS
(d) the aggregate amount of depreciation and amortization expense
for such period, to the extent deducted in determining net income for
such period, PLUS
(e) the aggregate amount of (i) accretion expense with respect to
options or rights to acquire the Company's common stock and (ii) any
write-off of expenses arising in connection with the Loans, in each case
to the extent deducted in determining net income for such period, PLUS
(f) the net income of any Person that is accounted for by the
equity method of accounting, but only to the extent of dividends paid to
the Company or any of its Subsidiaries, PLUS
(g) the aggregate amount of non-cash expense for such period
associated with the closure and post-closure reserves of a plant or
facility owned by the Company or any of its Subsidiaries, PLUS
(h) the aggregate amount of all other non-cash expenses for such
period, to the extent not specifically described above in this
definition, MINUS
(i) solely for purposes of Section 9.12 hereof and the
definitions of "EBITDA Ratio", "Fixed Charges Ratio" and "Interest
Coverage Ratio" in this Section 1.01, Project Development Fees for such
period to the extent that they exceed $750,000;
PROVIDED, that "EBITDA" for each of the first and second fiscal quarters of 1996
shall be deemed to be $1,400,000.
"EBITDA RATIO" shall mean, at any date, the ratio of (a) all
Indebtedness of the Obligors on such date (other than any CapEx Loans made
during the immediately preceding six-month period) to (b) EBITDA for the period
of 12 consecutive months ending on or most recently ended prior to such date,
PROVIDED HOWEVER, that for the purposes of calculating the EBITDA Ratio at the
end of the third fiscal quarter of 1996 only, EBITDA shall be determined by
multiplying the sum of the EBITDA for the first three fiscal quarters of 1996 by
1.33.
-7-
"ENVIRONMENTAL CLAIM" shall mean, with respect to any Person, any
written or oral notice, claim, demand or other communication (collectively, a
"CLAIM") by any other Person alleging or asserting such Person's liability for
investigatory costs, cleanup costs, governmental response costs, damages to
natural resources or other Property, personal injuries, fines or penalties
arising out of, based on or resulting from (i) the presence, or Release into the
environment, of any Hazardous Material at any location, whether or not owned by
such Person, or (ii) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law. The term "Environmental Claim"
shall include, without limitation, any claim by any governmental authority for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and any claim by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence of Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAWS" shall mean any and all present and future
Federal, state, local and foreign laws, codes, rules or regulations, and any
orders, decrees, judgments or injunctions, in each case as now or hereafter in
effect, relating to the regulation or protection of human health, worker safety
and protection or the environment or to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals or toxic or hazardous
substances or wastes into the indoor or outdoor environment, including, without
limitation, ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or toxic or hazardous substances or wastes.
"EQUITY ISSUANCE" shall mean (a) any issuance or sale by the
Company or any of its Subsidiaries after the Closing Date of (i) any capital
stock, (ii) any warrants or options exercisable in respect of capital stock
(other than any warrants or options issued to directors, officers or employees
of the Company or any of its Subsidiaries pursuant to the Incentive Compensation
Plan and any capital stock of the Company issued upon the exercise of such
warrants or options, PROVIDED that the issuance or sale of Equity Rights (and
capital stock in connection therewith) issued to directors, officers or
employees of the Company in connection with the Repurchase Transaction shall be
deemed an Equity Issuance regardless of whether such Equity Rights are issued
pursuant to the Incentive Compensation
-8-
Plan) or (iii) any other security or instrument representing an equity interest
(or the right to obtain any equity interest) in the Company or any of its
Subsidiaries or (b) the receipt by the Company or any of its Subsidiaries after
the Closing Date of any capital contribution (whether or not evidenced by any
equity security issued by the recipient of such contribution); PROVIDED that
Equity Issuance shall not include (A) any such issuance or sale by any
Subsidiary of the Company to the Company or any Wholly Owned Subsidiary of the
Company, (B) any capital contribution by the Company or any Wholly Owned
Subsidiary of the Company to any Subsidiary of the Company or (C) the issuance
of any warrants to any Lender or any capital stock, options or equity rights of
the Company issued upon the exercise of any such warrants.
"EQUITY RIGHTS" shall mean, with respect to any Person, any
subscriptions, options, warrants, commitments, preemptive rights or agreements
of any kind (including, without limitation, any stockholders' or voting trust
agreements) for the issuance, sale, registration or voting of, or securities
convertible into, any additional shares of capital stock of any class, or
partnership or other ownership interests of any type in, such Person.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE" shall mean any corporation or trade or business
that is a member of any group of organizations (i) described in Section 414(b)
or (c) of the Code of which the Company is a member and (ii) solely for purposes
of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11)
of the Code and the lien created under Section 302(f) of ERISA and Section
412(n) of the Code, described in Section 414(m) or (o) of the Code of which the
Company is a member.
"EURODOLLAR LOANS" shall mean Loans that bear interest at rates
based on rates referred to in the definition of "Eurodollar Rate" in this
Section 1.01.
"EURODOLLAR RATE" shall mean, with respect to any Eurodollar Loan
for any Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%), reported, at 11:00 a.m. (London time) on
the date two Business Days prior to the first day of such Interest Period, on
Telerate Access Service Page 3750 (British Bankers Association Settlement Rate)
as the London Interbank Offered Rate for Dollar deposits
-9-
having a term comparable to such Interest Period and in an amount equal to or
greater than $1,000,000.
"EVENT OF DEFAULT" shall have the meaning assigned to such term
in Section 10 hereof.
"EXCESS CASH" shall mean, as at the last day of any month, the
excess of (a) the average of the aggregate amount of cash, investments in
deposit accounts and Permitted Investments (excluding, in each case, any
Restricted Cash) held by the Company and its Subsidiaries on the last day of
such month and on the last day of each of the immediately preceding five months
(computed on the basis of the financial statements submitted to the Lenders
pursuant to Section 9.01(b) hereof) over (b) $500,000.
"EXCESS CASH FLOW" shall mean, for any period, the
excess of:
(a) the sum of the following (without duplication): (i) EBITDA
for such period, PLUS (ii) proceeds of business interruption or similar
insurance received during such period, PLUS (iii) decreases in Working
Capital of the Obligors for such period, PLUS (iv) all tax refunds
received by the Obligors in cash during such period, OVER
(b) the sum of the following (without duplication): (i) Debt
Service for such period, PLUS (ii) Capital Expenditures made during such
period (except for any such Capital Expenditures to the extent financed
with the proceeds of CapEx Loans or Revolving Credit Loans), PLUS (iii)
increases in Working Capital of the Obligors for such period, PLUS (iv)
the aggregate amount of cash taxes actually paid by the Company and its
Subsidiaries during such period.
For purposes of this definition of "Excess Cash Flow," "WORKING CAPITAL" shall
have the meaning given to that term by GAAP, PROVIDED that Working Capital shall
not include any Revolving Credit Loans or any current maturities of any
long-term debt.
"FEDERAL BUREAU OF PRISONS CONTRACT" shall mean the perpetual
agreement between the Department of Justice, Bureau of Prisons and the City of
Big Springs for the incarceration of federal inmates.
"FEDERAL FUNDS RATE" shall mean, for any day, the rate
per annum (rounded upwards, if necessary, to the nearest 1/100 of
-10-
1%) equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published by the Federal Reserve Bank of New York
on the Business Day next succeeding such day, PROVIDED that (a) if the day for
which such rate is to be determined is not a Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day and (b) if such
rate is not so published for any Business Day, the Federal Funds Rate for such
Business Day shall be the average of quotations for such day on transactions,
received by the Agent (or any of its Affiliates) from three federal funds
brokers of recognized standing selected by it.
"FEE LETTER" shall mean that certain fee letter, dated May 15,
1996, from ING to the Company.
"FIXED CHARGES RATIO" shall mean, as at any date, the
ratio of:
(a) the sum of (i) EBITDA for the period of 12- consecutive
months ending on or most recently ended prior to such date (PROVIDED,
that for the purposes of calculating the Fixed Charge Ratio at the end
of the third fiscal quarter of 1996 only, EBITDA shall be determined by
multiplying the sum of the EBITDA for the first three fiscal quarters of
1996 by 1.33), MINUS (ii) Capital Expenditures made by the Company and
its Subsidiaries during such Period to the extent not financed with the
proceeds of CapEx Loans or Revolving Credit Loans, MINUS (iii) taxes
paid in cash during such period, TO
(b) Debt Service for such period.
"GAAP" shall mean generally accepted accounting principles
applied on a basis consistent with those that, in accordance with the last
sentence of Section 1.02(a) hereof, are to be used in making the calculations
for purposes of determining compliance with this Agreement.
"GUARANTEE" shall mean a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or become contingently liable under or with respect to, the
Indebtedness, other obligations, net worth, working capital or earnings of any
Person, or a guarantee of the payment of dividends or other distributions upon
the stock or equity interests of any Person,
-11-
or an agreement to purchase, sell or lease (as lessee or lessor) Property,
products, materials, supplies or services primarily for the purpose of enabling
a debtor to make payment of such debtor's obligations or an agreement to assure
a creditor against loss, and including, without limitation, causing a bank or
other financial institution to issue a letter of credit or other similar
instrument for the benefit of another Person, but excluding endorsements for
collection or deposit in the ordinary course of business. The terms "GUARANTEE"
and "GUARANTEED" used as a verb shall have a correlative meaning.
"HAZARDOUS MATERIAL" shall mean, collectively, (a) any petroleum
or petroleum products, flammable materials, explosives, radioactive materials,
asbestos, urea formaldehyde foam insulation, and polychlorinated biphenyls
("PCB'S") and (b) any chemicals or other materials or substances that are now or
(except for purposes of Section 8.13 hereof) hereafter become defined as or
included in the definition of "hazardous substances", "hazardous wastes",
"hazardous materials", "extremely hazardous wastes", "restricted hazardous
wastes", "toxic substances", "toxic pollutants", "contaminants", "pollutants" or
any similar denomination intended to classify substances by reason of toxicity,
carcinogenicity, ignitability, corrosivity or reactivity.
"IMPERMISSIBLE QUALIFICATION" shall mean any qualification,
exception or other statement in any opinion or certification of any independent
public accounts which either (a) is of a "going concern" or similar nature; or
(b) relates to the limited scope of examination of matters relevant to the
financial statements referred to in such opinion or certification.
"INCENTIVE COMPENSATION PLAN" shall mean a plan established by
the Company for the benefit of certain of its employees, or any other written
agreement to which the Company is a party, providing for the issuance to
employees of warrants or options in respect of the Company's capital stock,
PROVIDED that (a) the aggregate amount of capital stock that such warrants and
options would represent if exercised cannot exceed 20% of aggregate amount of
the Company's capital stock that would then be outstanding and (b) all other
terms and conditions of such plan or other written agreement shall be
satisfactory to the Majority Lenders.
"INDEBTEDNESS" shall mean, for any Person: (a)
obligations created, issued or incurred by such Person for
borrowed money (whether by loan, the issuance and sale of debt
securities or the sale of Property to another Person subject to
-12-
an understanding or agreement, contingent or otherwise, to repurchase such
Property from such Person); (b) obligations of such Person to pay the deferred
purchase or acquisition price of Property or services, other than trade accounts
payable (other than for borrowed money) arising, and accrued expenses incurred,
in the ordinary course of business so long as such trade accounts payable are
payable within 90 days of the date the respective goods are delivered or the
respective services are rendered; (c) Indebtedness of others secured by a Lien
on the Property of such Person, whether or not the respective indebtedness so
secured has been assumed by such Person; (d) obligations of such Person in
respect of letters of credit or similar instruments issued or accepted by banks
and other financial institutions for account of such Person; (e) Capital Lease
Obligations of such Person; and (f) Indebtedness of others Guaranteed by such
Person.
"ING" shall mean Internationale Nederlanden (U.S.)
Capital Corporation.
"ING STOCK OPTION AGREEMENT" shall mean that certain Stock Option
Agreement, dated as of November 1, 1995, between ING and the Company.
"INTEREST COVERAGE RATIO" shall mean, as of any date, the ratio
of (a) EBITDA for the period of 12 consecutive months ending on or most recently
ended prior to such date (PROVIDED, that for the purposes of calculating the
Interest Coverage Ratio at the end of the third fiscal quarter of 1996 only,
EBITDA shall be determined by multiplying the sum of the EBITDA for the first
three fiscal quarters of 1996 by 1.33) to (b) Interest Expense for such period
(PROVIDED, that for the purposes of calculating the Interest Coverage Ratio at
the end of the third fiscal quarter of 1996 only, Interest Expense shall be
determined by multiplying the sum of the Interest Expense for the first three
fiscal quarters of 1996 by 1.33).
"INTEREST EXPENSE" shall mean, for any period, the sum, for the
Company and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following: (a) all interest in
respect of Indebtedness (including, without limitation, the interest component
of any payments in respect of Capital Lease Obligations) accrued or capitalized
during such period (whether or not actually paid during such period), PLUS (b)
the net amount payable (or MINUS the net amount receivable) under Interest Rate
Protection Agreements during such period (whether or not actually paid or
received during such period), MINUS (c) direct reimbursements received by an
Obligor during such period by a party to a
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Correctional and Detention Facility Agreement, to the extent that such
reimbursements relate to interest expense of the Company or one of its
Subsidiaries; PROVIDED, that "Interest Expense" for each of the first and second
fiscal quarters of 1996 shall be deemed to be $875,000.
"INTEREST PERIOD" shall mean, with respect to any Eurodollar
Loan, each period commencing on the date such Eurodollar Loan is made or
Converted from a Base Rate Loan or the last day of the immediately preceding
Interest Period for such Loan and ending on the numerically corresponding day in
the first, second, third or sixth month thereafter, as the Company may select as
provided in Section 4.05 hereof (or such longer period as may be requested by
the Company and agreed to by all of the Lenders), except that each Interest
Period that commences on the last Business Day of a calendar month (or on any
day for which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day of the appropriate
subsequent calendar month. Notwithstanding the foregoing: (i) if any Interest
Period for any Revolving Credit Loan would otherwise end after the Revolving
Credit Commitment Termination Date, such Interest Period shall end on the
Revolving Credit Commitment Termination Date; (ii) no Interest Period for any
Term Loan may commence before and end after any Term Loan Principal Payment Date
unless, after giving effect thereto, the aggregate principal amount of the Term
Loans having Interest Periods that end after such Term Loan Principal Payment
Date shall be equal to or less than the aggregate principal amount of the Term
Loans scheduled to be outstanding after giving effect to the payments of
principal required to be made on such Term Loan Principal Payment Date; (iii) no
Interest Period for any CapEx Loan may commence before and end after any CapEx
Loan Principal Payment Date unless, after giving effect thereto, the aggregate
principal amount of the CapEx Loans having Interest Periods that end after such
CapEx Loan Principal Payment Date shall be equal to or less than the aggregate
principal amount of the CapEx Loans scheduled to be outstanding after giving
effect to the payments of principal required to be made on such CapEx Loan
Principal Payment Date; (iv) no Interest Period for any Repurchase Loan may
commence before and end after the Repurchase Loan Principal Payment Date unless,
after giving effect thereto, the aggregate principal amount of the Repurchase
Loan having Interest Periods that end after such Repurchase Loan Principal
Payment Date shall be equal to or less than the aggregate principal amount of
the Repurchase Loans scheduled to be outstanding after giving effect to the
payments of principal required to be made on such Repurchase Principal Payment
Date; (v) each Interest Period that would otherwise end on a day that
-14-
is not a Business Day shall end on the next succeeding Business Day (or, if such
next succeeding Business Day falls in the next succeeding calendar month, on the
next preceding Business Day); and (vi) notwithstanding clauses (i), (ii), (iii),
(iv) and (v) above, no Interest Period for any Loan shall have a duration of
less than one month, and if the Interest Period would otherwise be a shorter
period, such Loan shall not be available hereunder for such period.
"INTEREST RATE PROTECTION AGREEMENT" shall mean, for any Person,
an interest rate swap, cap or collar agreement or similar arrangement between
such Person and one or more financial institutions providing for the transfer or
mitigation of interest risks either generally or under specific contingencies.
"INVESTMENT" shall mean, for any Person: (a) the acquisition
(whether for cash, Property, services or securities or otherwise) of capital
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including, without limitation, any "short sale" or any sale of any
securities at a time when such securities are not owned by the Person entering
into such sale); (b) the making of any deposit with, or advance, loan or other
extension of credit to, any other Person (including the purchase of Property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such Property to such Person), but excluding any such
advance, loan or extension of credit having a term not exceeding 90 days
representing the purchase price of inventory or supplies sold by such Person in
the ordinary course of business); (c) the entering into of any Guarantee of, or
other contingent obligation with respect to, Indebtedness or other liability of
any other Person and (without duplication) any amount committed to be advanced,
lent or extended to such Person; or (d) the entering into of any Interest Rate
Protection Agreement.
"INVESTORS AGREEMENT" shall mean the agreement dated as of
November 1, 1995, among the Company, Concord Partners II, L.P., Charterhouse
Equity Partners II, L.P., ING, the Agent, and certain other parties.
"LETTER OF CREDIT" shall have the meaning assigned to such term
in Section 2.10 hereof.
"LETTER OF CREDIT ISSUER" shall mean ING as the issuer of Letters
of Credit under Section 2.10 hereof, together with its successors in such
capacity.
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"LETTER OF CREDIT DOCUMENTS" shall mean, with respect to any
Letter of Credit, collectively, any application therefor any other agreements,
instruments, guarantees or other documents (whether general in application or
applicable only to such Letter of Credit) governing or providing for (a) the
rights and obligations of the parties concerned or at risk with respect to such
Letter of Credit or (b) any collateral security for any of such obligations,
each as the same may be modified and supplemented and in effect from time to
time.
"LETTER OF CREDIT INTEREST" shall mean, for each Lender, such
Lender's participation interest (or, in the case of the Letter of Credit Issuer,
its retained interest) in the Letter of Credit Issuer's liability under Letters
of Credit and such Lender's rights and interests in Reimbursement Obligations
and fees, interest and other amounts payable in connection with Letters of
Credit and Reimbursement Obligations.
"LETTER OF CREDIT LIABILITY" shall mean, without duplication, at
any time and in respect of any Letter of Credit, the sum of (a) the undrawn face
amount of such Letter of Credit, PLUS (b) the aggregate unpaid principal amount
of all Reimbursement Obligations of the Company at such time due and payable in
respect of all drawings made under such Letter of Credit. For purposes of this
Agreement, a Lender (other than the Letter of Credit Issuer) shall be deemed to
hold a Letter of Credit Liability in an amount equal to its participation
interest in the related Letter of Credit under Section 2.10 hereof, and the
Letter of Credit Issuer shall be deemed to hold a Letter of Credit Liability in
an amount equal to its retained interest in the related Letter of Credit after
giving effect to the acquisition by the Lenders other than the Letter of Credit
Issuer of their participation interests under said Section 2.10.
"LEVERAGE RATIO" shall mean, at any time, the ratio of Total
Liabilities to Net Worth of the Company at such time.
"LIEN" shall mean, with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect of
such Property. For purposes of this Agreement and the other Basic Documents, a
Person shall be deemed to own subject to a Lien any Property that it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
(other than an operating lease) relating to such Property.
-16-
"LOANS" shall mean Revolving Credit Loans, Term Loans,
CapEx Loans and Repurchase Loans.
"MAJORITY LENDERS" shall mean Lenders holding at least 66 2/3% of
the sum of (a) the aggregate unpaid principal amount of Loans PLUS (b) Lenders
having at least 66 2/3% of the aggregate amount of Commitments; PROVIDED THAT at
all times during which there are two or fewer Lenders, "Majority Lenders" shall
mean all Lenders.
"MARGIN STOCK" shall mean "margin stock" within the meaning of
Regulations G, U and X.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on
(a) the Property, business, operations, financial condition, prospects,
liabilities or capitalization of the Company and its Subsidiaries taken as a
whole, (b) the ability of any Obligor to perform its obligations under any of
the Basic Documents to which it is a party, (c) the validity or enforceability
of any of the Basic Documents, (d) the rights and remedies of the Lenders and
the Agent under any of the Basic Documents or (e) the timely payment of the
principal of or interest on the Loans, Reimbursement Obligations or other
amounts payable in connection therewith.
"MIDTEX" shall mean MidTex Detentions, Inc., a Texas
corporation.
"MIDTEX ACQUISITION" shall mean the acquisition by
Cornell Corrections of Texas, Inc. of substantially all of the
Property of MidTex pursuant to the MidTex Asset Purchase
Agreement.
"MIDTEX ASSET PURCHASE AGREEMENT" shall mean the Asset Purchase
Agreement dated as of May 22, 1996 among Cornell Corrections of Texas, Inc., the
Company, Ed Davenport, Johnny Rutherford and MidTex.
"MONTHLY DATE" shall mean the last Business Day of each calendar
month.
"MORTGAGE" shall mean, in connection with any interest in real
property (whether a fee or a leasehold estate) acquired by any Obligor after the
Closing Date, an Indenture or Instrument of Mortgage, Deed of Trust, Assignment
of Rents, Security Agreement and Fixture Filing executed by such Obligor in
favor of the Agent and the Lenders (or, if applicable, in favor of a Trustee,
for the benefit of the Agent and the Lenders), in each
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case in form and substance satisfactory to the Majority Lenders and covering
such interest in real property, as said instrument shall be modified and
supplemented and in effect from time to time.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined as
such in Section 3(37) of ERISA to which contributions have been made by the
Company or any ERISA Affiliate and that is covered by Title IV of ERISA.
"NET AVAILABLE PROCEEDS" shall mean:
(i) in the case of any Disposition, the amount of Net
Cash Payments received in connection with such Disposition;
(ii) in the case of any Casualty Event, the aggregate amount of
proceeds of insurance, condemnation awards and other compensation
received by the Company and its Subsidiaries in respect of such Casualty
Event net of (A) reasonable expenses incurred by the Company and its
Subsidiaries in connection therewith and (B) contractually required
repayments of Indebtedness to the extent secured by a Lien on such
Property and any income and transfer taxes payable by the Company or any
of its Subsidiaries in respect of such Casualty Event;
(iii) in the case of any incurrence of Indebtedness, the
aggregate amount of all cash received by the Company and its
Subsidiaries in respect of such incurrence net of fees and expenses
incurred by Company and its Subsidiaries in connection therewith;
(iv) in the case of any Equity Issuance, the aggregate amount of
all cash received by the Company and its Subsidiaries in respect of such
Equity Issuance (except for cash applied to repay amounts due in respect
of the Convertible Subordinated Note in accordance with the
subordination agreement executed and delivered by the holder thereof in
connection therewith) net of fees and expenses incurred by the Company
and its Subsidiaries in connection therewith; and
(v) in the case of any Project Development Fee, the aggregate
amount of such Project Development Fee (A) net of any expenses incurred
by the Company and its Subsidiaries in connection therewith, (B) net of
any payments required to be made by the Company or any of its
Subsidiaries to any consultants retained in connection therewith and (C)
any
-18-
federal, state, local and foreign taxes estimated to be payable by the
Company and its Subsidiaries as a result of the receipt of such Project
Development Fee (but only to the extent that such estimated taxes are in
fact paid to the relevant federal, state or local governmental authority
within three months of the receipt of such Project Development Fee).
"NET CASH PAYMENTS" shall mean, with respect to any Disposition,
the aggregate amount of all cash payments, and the fair market value of any
non-cash consideration, received by the Company and its Subsidiaries directly or
indirectly in connection with such Disposition; PROVIDED that (a) Net Cash
Payments shall be net of (i) the amount of any legal, title and recording tax
expenses, commissions and other fees and expenses paid by the Company and its
Subsidiaries in connection with such Disposition and (ii) any federal, state,
local and foreign taxes estimated to be payable by the Company and its
Subsidiaries as a result of such Disposition (but only to the extent that such
estimated taxes are in fact paid to the relevant Federal, state or local
governmental authority within three months of the date of such Disposition), (b)
Net Cash Payments shall be net of any repayments by the Company or any of its
Subsidiaries of Indebtedness to the extent that (i) such Indebtedness is secured
by a Lien on the Property that is the subject of such Disposition and (ii) the
transferee of (or holder of a Lien on) such Property requires that such
Indebtedness be repaid as a condition to the purchase of such Property and (c)
Net Cash Payments shall exclude the amount of any reasonable reserves
established by the Company or such Subsidiary, in accordance with GAAP, against
any liabilities retained by the Company or its Subsidiaries, which liabilities
are associated with the Property that is the subject of such Disposition (but
only during such period as such reserves are actually maintained), including
(without limitation) any indemnification obligations, pension and other
post-employment benefit liabilities, workers' compensation liabilities,
liabilities associated with retiree benefits, liabilities relating to
environmental matters and liabilities relating to any Guarantee of Indebtedness
secured by a Lien on such Property.
"NET SALES" shall mean, for any period, the sum for the Obligors
(determined on a consolidated basis without duplication in accordance with GAAP)
of all revenues (other than Project Development Fees) that should be classified
as net sales on an income statement.
"NET WORTH" shall mean, as at any date for any Person,
the sum for such Person and its Subsidiaries (determined on a
-19-
consolidated basis without duplication in accordance with GAAP),
of the following:
(a) the amount of capital stock; PLUS
(b) the amount of surplus and retained earnings (or, in the case
of a surplus or retained earnings deficit, MINUS the amount of such
deficit); PLUS
(c) any warrant accretion expense (as that term is used in GAAP)
or any original issue discount accretion expense (as such term is used
in GAAP) arising after the Closing Date, PLUS
(d) the value ascribed to any warrants issued to a
Lender and the cumulative effect of any change in the
valuation of such warrants, PLUS
(e) the outstanding amount of the Convertible
Subordinated Note.
PROVIDED that any predecessor basis adjustment required under
GAAP shall be disregarded in calculating "Net Worth."
"NOTES" shall mean the Revolving Credit Notes, the Term
Loan Notes, the CapEx Loan Notes and the Repurchase Loan Notes.
"OPERATING AGREEMENT" shall mean the Operating Agreement to be
entered into between MidTex, the City of Big Springs and Cornell Corrections of
Texas, Inc. relating to the Big Springs IGA.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"PERMITTED INVESTMENTS" shall mean: (a) direct obligations of the
United States of America, or of any agency thereof, or obligations guaranteed as
to principal and interest by the United States of America, or of any agency
thereof, in either case maturing not more than 90 days from the date of
acquisition thereof; (b) certificates of deposit issued by any Lender or by any
bank or trust company organized under the laws of the United States of America
or any state thereof and having capital, surplus and undivided profits of at
least $500,000,000, maturing not more than 90 days from the date of acquisition
thereof; (c) commercial paper rated A-1 or better or P-1 by Standard & Poor's
Corporation or Moody's Investors Services,
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Inc., respectively, maturing not more than six months from the date of
acquisition thereof; (d) commercial paper of any Lender (or any Affiliate
thereof located in the United States of America) that is rated A-1 or better or
P-1 by Standard and Poor's Corporation or Moody's Investors Services, Inc.,
respectively, maturing not more than six months from the date of acquisition
thereof; (e) repurchase agreements entered into with any Lender or with any bank
or trust company satisfying the conditions of clause (b) hereof that is secured
by any obligation of the type described in clauses (a) through (d) of this
definition; and (f) money market funds acceptable to the Majority Lenders.
"PERSON" shall mean any individual, corporation, company,
voluntary association, partnership, joint venture, trust, unincorporated
organization or government (or any agency, instrumentality or political
subdivision thereof).
"PLAN" shall mean an employee benefit or other plan established
or maintained by the Company or any ERISA Affiliate and that is covered by Title
IV of ERISA, other than a Multiemployer Plan.
"POST-DEFAULT RATE" shall mean, in respect of any principal of
any Loan, any Reimbursement Obligation or any other amount under this Agreement,
any Note or any other Basic Document that is not paid when due (whether at
stated maturity, by acceleration, by optional or mandatory prepayment or
otherwise), a rate per annum during the period from and including the due date
to but excluding the date on which such amount is paid in full equal to 2% PLUS
the Base Rate as in effect from time to time PLUS the Applicable Margin for Base
Rate Loans (PROVIDED that, with respect to principal of a Eurodollar Loan, the
"Post-Default Rate" for such principal shall be, for the period from and
including such due date to but excluding the last day of such Interest Period,
2% PLUS the interest rate for such Loan as provided in Section 3.02 hereof and,
thereafter, the rate provided for above in this definition).
"PRIME RATE" shall mean the arithmetic average of the rates of
interest publicly announced by The Chase Manhattan Bank (National Association),
Citibank, N.A. and Morgan Guaranty Trust Company of New York (or their
respective successors) as their respective prime commercial lending rates (or,
as to any such bank that does not announce such a rate, such bank's "base" or
other rate reasonably determined by the Agent to be the equivalent rate
announced by such bank), EXCEPT THAT, if any such bank shall, for any period,
cease to announce publicly its prime
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commercial lending (or equivalent) rate, the Agent shall, during such period,
reasonably determine the "prime rate" based upon the commercial lending (or
equivalent) rates announced publicly by the other such banks.
"PRINCIPAL LENDER" shall mean the institution holding, or acting
as agent for the institutions holding, a majority of the obligations created,
issued or incurred by the Obligors for borrowed money or if no institution holds
a majority of such obligations, the placement agent or managing underwriter of
such obligations.
"PROJECT DEVELOPMENT FEES" shall mean any fees paid to the
Company or any of its Subsidiaries for providing design, building, financial
advisory, consulting or development services for, or for arranging financing
for, a third party.
"PROPERTY" shall mean any right or interest in or to property of
any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"PUT AMOUNT" shall mean $250,000 payable by the Company to ING
upon the exercise of ING's put rights under the ING Stock Option Agreement.
"QUARTERLY DATES" shall mean the last Business Day of March,
June, September and December in each year, the first of which shall be the first
such day after the date of this Agreement.
"REGULATIONS A, D, G, U AND X" shall mean, respectively,
Regulations A, D, G, U and X of the Board of Governors of the Federal Reserve
System (or any successor), as the same may be modified and supplemented and in
effect from time to time.
"REGULATORY CHANGE" shall mean, with respect to any Lender, any
change after the date of this Agreement in Federal, state or foreign law or
regulations (including, without limitation, Regulation D) or the adoption or
making after the date of this Agreement of any interpretation, directive or
request applying to a class of banks including such Lender of or under any
Federal, state or foreign law or regulations (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
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"REIMBURSEMENT OBLIGATIONS" shall mean, at any time, the
obligations of the Company then outstanding, or that may thereafter arise in
respect of all Letters of Credit then outstanding, to reimburse amounts paid by
the Letter of Credit Issuer in respect of any drawings under a Letter of Credit.
"RELEASE" shall mean any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment, including, without limitation,
the movement of Hazardous Materials through ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata.
"RELEVANT CONTRACT" shall have the meaning set forth in
Section 7.02(b) hereof.
"RELEVANT TRANSACTION" shall have the meaning set forth
in Section 7.02(a) hereof.
"REPURCHASE LOAN COMMITMENT" shall mean, for each Lender, the
obligation of such Lender to make a single Repurchase Loan in an amount up to
but not exceeding the amount set forth opposite the name of such Lender on the
signature pages hereof under the caption "Repurchase Loan Commitment". The
aggregate principal amount of the Repurchase Loan Commitments is $2,350,000.
"REPURCHASE LOAN COMMITMENT TERMINATION DATE" shall
mean July 12, 1996.
"REPURCHASE LOAN NOTES" shall mean the promissory notes provided
for by Section 2.07(d) hereof and all promissory notes delivered in substitution
or exchange therefor, in each case as the same shall be modified and
supplemented and in effect from time to time.
"REPURCHASE LOAN PRINCIPAL PAYMENT DATES" shall mean the
Quarterly Dates falling on or nearest to December 31, 1996 and December 31,
2002.
"REPURCHASE LOANS" shall mean the loans provided for by Section
2.01(d) hereof, which shall only be Base Rate Loans.
"REPURCHASE TRANSACTION" shall mean the acquisition by the
Company of 555,000 shares of common stock of the Company from Mr. Norman Cox for
a price per share equal to $3.75, the payment of fees and expenses by the
Company in connection therewith in an aggregate amount equal to $229,000, and
the issuance of Equity
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Rights in respect of 555,000 shares of common stock of the Company to
securityholders of the Company pursuant to the Stock Option Agreements.
"RESTRICTED CASH" shall mean, for any period, collectively, (a)
amounts required to be set aside by the Company or its Subsidiaries pursuant to
Correctional and Detention Facility Agreements for inmate welfare and for
replacement of equipment, (b) amounts required to be held in escrow pursuant to
any lease of any real property entered into by the Company or its Subsidiaries
for restoration of such real property at the end of the applicable lease term
and (c) funds to be deposited into inmate bank accounts.
"REVOLVING CREDIT COMMITMENT" shall mean, for each Lender, the
obligation of such Lender to make Revolving Credit Loans in an aggregate
principal amount at any one time outstanding up to but not exceeding the amount
set forth opposite the name of such Lender on the signature pages hereof under
the caption "Revolving Credit Commitment" (as the same may be reduced from time
to time pursuant to Section 2.03 hereof). The original aggregate principal
amount of the Revolving Credit Commitments is $2,500,000.
"REVOLVING CREDIT COMMITMENT TERMINATION DATE" shall
mean the Business Day immediately preceding June 30, 2001.
"REVOLVING CREDIT LOANS" shall mean the loans provided for by
Section 2.01(a) hereof, which may be Base Rate Loans and/or Eurodollar Loans.
"REVOLVING CREDIT NOTES" shall mean the promissory notes provided
for by Section 2.07(a) hereof and all promissory notes delivered in substitution
or exchange therefor, in each case as the same shall be modified and
supplemented and in effect from time to time.
"SECURITY AGREEMENT" shall mean the Security Agreement dated as
of March 14, 1995 between each Obligor and the Agent, as the same shall be
modified and supplemented and in effect from time to time.
"SECURITY AGREEMENT AMENDMENT" shall mean an Amendment to the
Security Agreement between each Obligor and the Agent, substantially in the form
of Exhibit B-2 hereto.
"SECURITY DOCUMENTS" shall mean, collectively, the
Security Agreement, any Mortgage and all Uniform Commercial Code
-24-
financing statements required by this Agreement, the Security Agreement or any
Mortgage to be filed with respect to the security interests in personal Property
and fixtures created pursuant to the Security Agreement or any Mortgage.
"SELLER SUBORDINATED DEBT" shall mean Indebtedness of the
Company, in an aggregate principal amount not to exceed $700,000, (i)
outstanding under Section 3(d) of each of the Employment Agreements, dated March
31, 1994, among Cornell Cox Group, L.P., Eclectic Communications, Inc., and,
each of John R. Forren, Marvin H. Wiebe, Jr. and Richard A. Frank (collectively,
the "EMPLOYEES") and (ii) guaranteed by the Company, by the Guaranty, dated the
date of the Original Credit Agreement, by the Company in favor of the Employees.
"SELLING, GENERAL AND ADMINISTRATIVE EXPENSES" shall mean, for
any period, the sum for the Obligors (determined on a consolidated basis without
duplication in accordance with GAAP) of all expenses that should be classified
as selling, general and administrative expenses on an income statement.
"SELLING, GENERAL AND ADMINISTRATIVE EXPENSE RATIO" shall mean
the ratio of (a) Selling, General and Administrative Expenses for the period of
four consecutive fiscal quarters ending on or most recently ended prior to such
date (or, with respect to any date prior to December, 1995, for the period
commencing on January 1, 1995 and ending on the fiscal quarter ending on or most
recently ended prior to such date) to (b) Net Sales for such period.
"STOCK OPTION AGREEMENTS" shall have the meaning set
forth in the Investors Agreement.
"SUBSIDIARY" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person.
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"TERM LOAN COMMITMENT" shall mean, for each Lender, the
obligation of such Lender to make a Term Loan in an aggregate amount up to but
not exceeding the amount set forth opposite the name of such Lender on the
signature pages hereof under the caption "Term Loan Commitment" (as the same may
be reduced from time to time pursuant to Section 2.03 hereof). The original
aggregate principal amount of the Term Loan Commitments is $23,200,000.
"TERM LOAN COMMITMENT TERMINATION DATE" shall mean July
12, 1996.
"TERM LOAN NOTES" shall mean the promissory notes provided for by
Section 2.07(b) hereof and all promissory notes delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.
"TERM LOAN PRINCIPAL PAYMENT DATES" shall mean the Quarterly
Dates, commencing with December 31, 1996 through and including December 31,
2002.
"TERM LOANS" shall mean the loans provided for by Section 2.01(b)
hereof, which may be Base Rate Loans and/or Eurodollar Loans.
"TOTAL LIABILITIES" shall mean, as at any date, the sum, for the
Company and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following: (a) all Indebtedness,
PLUS (b) all other liabilities that should be classified as long-term
liabilities on a balance sheet, including, without limitation, all reserves
(other than general contingency reserves) and all deferred taxes and other
deferred items, MINUS (c) the amount outstanding of the Covertible Subordinated
Note.
"TYPE" shall have the meaning assigned to such term in
Section 1.03 hereof.
"USE PERMIT" shall mean any permit issued by a municipal, state
or federal government, or agency, instrumentality or subdivision thereof, that
is required for the operation by the Company or its Subsidiaries of any
correctional or detention facility.
"WHOLLY OWNED SUBSIDIARY" shall mean, with respect to any Person,
any corporation, partnership or other entity of which all of the equity
securities or other ownership interests (other
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than, in the case of a corporation, directors' qualifying shares) are directly
or indirectly owned or controlled by such Person or one or more Wholly Owned
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Subsidiaries of such Person.
1.02 ACCOUNTING TERMS AND DETERMINATIONS.
(a) Except as otherwise expressly provided herein, all accounting
terms used herein shall be interpreted, and all financial statements and
certificates and reports as to financial matters required to be delivered to the
Lenders hereunder shall (unless otherwise disclosed to the Lenders in writing at
the time of delivery thereof in the manner described in subsection (b) below) be
prepared, in accordance with generally accepted accounting principles applied on
a basis consistent with those used in the preparation of the latest financial
statements furnished to the Lenders hereunder (which, prior to the delivery of
the first financial statements under Section 9.01 hereof, shall mean the audited
financial statements as at December 31, 1995 referred to in Section 8.02
hereof). All calculations made for the purposes of determining compliance with
this Agreement shall (except as otherwise expressly provided herein) be made by
application of generally accepted accounting principles applied on a basis
consistent with those used in the preparation of the latest annual or quarterly
financial statements furnished to the Lenders pursuant to Section 9.01 hereof
(or, prior to the delivery of the first financial statements under Section 9.01
hereof, used in the preparation of the audited financial statements as at
December 31, 1995 referred to in Section 8.02 hereof) unless (i) the Company
shall have objected to determining such compliance on such basis at the time of
delivery of such financial statements or (ii) the Majority Lenders shall so
object in writing within 30 days after delivery of such financial statements, in
either of which events such calculations shall be made on a basis consistent
with those used in the preparation of the latest financial statements as to
which such objection shall not have been made (which, if objection is made in
respect of the first financial statements delivered under Section 9.01 hereof,
shall mean the audited financial statements referred to in Section 8.02 hereof).
(b) The Company shall deliver to the Lenders at the same time as
the delivery of any annual or quarterly financial statement under Section 9.01
hereof (i) a description in reasonable detail of any material variation between
the application of accounting principles employed in the preparation of such
statement and the application of accounting principles employed in the
preparation of the next preceding annual or
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quarterly financial statements as to which no objection has been made in
accordance with the last sentence of subsection (a) above and (ii) reasonable
estimates of the difference between such statements arising as a consequence
thereof.
(c) To enable the ready and consistent determination of
compliance with the covenants set forth in Section 9 hereof, the Company will
not change the last day of its fiscal year from December 31 of each year, or the
last days of the first three fiscal quarters in each of its fiscal years from
March 31, June 30, September 30 and December 31 of each year, respectively.
1.03 CLASSES AND TYPES OF LOANS. Loans hereunder are
distinguished by "Class" and by "Type". The "Class" of a Loan (or of a
Commitment to make a Loan) refers to whether such Loan is a Revolving Credit
Loan, a Term Loan, a CapEx Loan or a Repurchase Loan, each of which constitutes
a Class. The "Type" of a Loan refers to whether such Loan is a Base Rate Loan or
a Eurodollar Loan, each of which constitutes a Type. Loans may be identified by
both Class and Type.
Section 2. COMMITMENTS, LOANS, NOTES AND PREPAYMENTS.
2.01 LOANS.
(a) REVOLVING CREDIT LOANS. Each Lender severally agrees, on the
terms and conditions of this Agreement, to make loans to the Company in Dollars
during the period from and including the Closing Date to but not including the
Revolving Credit Commitment Termination Date in an aggregate principal amount at
any one time outstanding up to but not exceeding the amount of the Revolving
Credit Commitment of such Lender as in effect from time to time. Subject to the
terms and conditions of this Agreement, during such period the Company may
borrow, repay and reborrow the amount of the Revolving Credit Commitments by
means of Base Rate Loans and Eurodollar Loans and may Convert Revolving Credit
Loans of one Type into Revolving Credit Loans of the other Type (as provided in
Section 2.08 hereof) or Continue Eurodollar Loans from one Interest Period to
the next Interest Period (as provided in Section 2.08 hereof).
(b) TERM LOANS. Each Lender severally agrees, on the
terms and conditions of this Agreement, to make a single term
loan to the Company in Dollars on or before the Term Loan
Commitment Termination Date in an aggregate principal amount up
to but not exceeding the amount of the Term Loan Commitment of
such Lender. Thereafter the Company may Convert Term Loans of
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one Type into Term Loans of the other Type (as provided in Section 2.08 hereof)
or Continue Eurodollar Loans from one Interest Period to the next Interest
Period (as provided in Section 2.08 hereof).
(c) CAPEX LOANS. Each Lender severally agrees, on the terms and
conditions of this Agreement, to make loans to the Company in Dollars during the
period from and including the Closing Date to but not including the CapEx Loan
Commitment Termination Date in an aggregate principal amount at any one time
outstanding up to but not exceeding the amount of the CapEx Loan Commitment of
such Lender as in effect from time to time, PROVIDED that in no event shall the
aggregate principal amount of all CapEx Loans, together with the aggregate
amount of all Letter of Credit Liabilities, exceed the aggregate amount of the
CapEx Loan Commitments as in effect from time to time. Subject to the terms and
conditions of this Agreement, during such period the Company may borrow, repay
and reborrow the amount of the CapEx Loan Commitments by means of Base Rate
Loans and Eurodollar Loans and may Convert Revolving Credit Loans of one Type
into Revolving Credit Loans of the other Type (as provided in Section 2.08
hereof) or Continue Eurodollar Loans from one Interest Period to the next
Interest Period (as provided in Section 2.08 hereof).
(d) REPURCHASE LOANS. Each Lender severally agrees, on the terms
and conditions of this Agreement, to make a single loan to the Company in
Dollars on or before the Repurchase Loan Commitment Termination Date in an
aggregate principal amount up to but not exceeding the amount of the Repurchase
Loan Commitment of such Lender. Repurchase Loans shall only be Base Rate Loans.
(e) LIMIT ON EURODOLLAR LOANS. No more than six
separate Interest Periods in respect of Eurodollar Loans from
each Lender may be outstanding at any one time.
2.02 BORROWINGS OF LOANS. The Company shall give the Agent notice
of each borrowing hereunder as provided in Section 4.05 hereof. Not later than
1:00 p.m. New York time on the date specified for each borrowing of Loans
hereunder, each Lender shall make available the amount of the Loan or Loans to
be made by it on such date to the Agent, at account number 600-07-116 (ABA No.
021000238) maintained by the Agent with Morgan Guaranty Trust Company of New
York, in immediately available funds, for account of the Company. The amount so
received by the Agent shall, subject to the terms and conditions of this
Agreement, be made available to the Company by depositing the same, in
immediately available funds, in an account of the
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Company maintained with a bank in New York City, Houston, Texas or San
Francisco, California, designated by the Company.
2.03 CHANGES OF COMMITMENTS.
(a) The aggregate amount of the Revolving Credit Commitments
shall be automatically reduced to zero on the Revolving Credit Commitment
Termination Date.
(b) The aggregate amount of the Term Loan Commitments shall be
automatically reduced to zero on the Term Loan Commitment Termination Date.
(c) The aggregate amount of the CapEx Loan Commitments shall be
automatically reduced to zero on the CapEx Loan Commitment Termination Date.
(d) The aggregate amount of the Repurchase Loan Commitments shall
be automatically reduced to zero on the Repurchase Loan Commitment Termination
Date.
(e) The Company shall have the right at any time or from time to
time (i) to terminate or reduce the aggregate unused amount of the Term Loan
Commitments, (ii) to terminate or reduce the aggregate unused amount of the
Repurchase Loan Commitments, (iii) so long as no CapEx Loans or Letter of Credit
Liabilities are outstanding, to terminate the CapEx Loan Commitments, (iv) so
long as no Revolving Credit Loans are outstanding, to terminate the Revolving
Credit Commitments, and (v) to reduce the aggregate unused amount of the
Revolving Credit Commitments or the CapEx Loan Commitments (for which purpose
use of the CapEx Commitments shall be deemed to include the aggregate amount of
Letter of Credit Liabilities); PROVIDED that (x) the Company shall give notice
of each such termination or reduction as provided in Section 4.05 hereof and (y)
each partial reduction shall be in an aggregate amount at least equal to (x) in
the case of Base Rate Loans, $25,000 (or a larger multiple of $25,000), and (y)
in the case of Eurodollar Loans, $250,000 (or a larger multiple of $25,000).
(f) The Commitments once terminated or reduced may not
be reinstated.
2.04 COMMITMENT FEE. The Company shall, with respect to each
Commitment, pay to the Agent, for the account of each Lender, a commitment fee
on the daily average unused amount of such Lender's Commitment (for which
purpose the aggregate amount of any Letter of Credit Liabilities shall be deemed
to be a pro
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rata (based on the CapEx Loan Commitments) use of each Lender's CapEx Loan
Commitment), for the period from and including the Closing Date to (but not
including) the date such Commitment is reduced to zero, at a rate per annum
equal to 1/2 of 1%. Accrued commitment fees shall be payable on each Monthly
Date and on the date any Commitment is reduced to zero.
2.05 LENDING OFFICES. The Loans of each Type made by each Lender
shall be made and maintained at such Lender's Applicable Lending Office for
Loans of such Type.
2.06 SEVERAL OBLIGATIONS; REMEDIES INDEPENDENT. The failure of
any Lender to make any Loan to be made by it on the date specified therefor
shall not relieve any other Lender of its obligation to make its Loan on such
date, but neither any Lender nor the Agent shall be responsible for the failure
of any other Lender to make a Loan to be made by such other Lender, and no
Lender shall have any obligation to the Agent or any other Lender for the
failure by such Lender to make any Loan required to be made by such Lender. The
amounts payable by the Company at any time hereunder and under the Notes to each
Lender shall be a separate and independent debt and each Lender shall be
entitled to protect and enforce its rights arising out of this Agreement and the
Notes, and it shall not be necessary for any other Lender or the Agent to
consent to, or be joined as an additional party in, any proceedings for such
purposes.
2.07 NOTES.
(a) The Revolving Credit Loans made by each Lender shall be
evidenced by a single promissory note of the Company substantially in the form
of Exhibit A-1 hereto, dated the date hereof, payable to such Lender in a
principal amount equal to the amount of its Revolving Credit Commitment as
originally in effect and otherwise duly completed.
(b) The Term Loan made by each Lender shall be evidenced by a
single promissory note of the Company substantially in the form of Exhibit A-2
hereto, dated the date hereof, payable to such Lender in a principal amount
equal to the amount of its Term Loan Commitment as originally in effect and
otherwise duly completed.
(c) The CapEx Loans made by each Lender shall be evidenced by a
single promissory note of the Company substantially in the form of Exhibit A-3
hereto, dated the date hereof, payable to such Lender in a principal amount
equal to the
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amount of its CapEx Loan Commitment as originally in effect and
otherwise duly completed.
(d) The Repurchase Loan made by each Lender shall be evidenced by
a single promissory note of the Company substantially in the form of Exhibit A-4
hereto, dated the date hereof, payable to such Lender in a principal amount
equal to the amount of its Repurchase Loan Commitment as originally in effect
and otherwise duly completed.
(e) The date, amount, Type, interest rate and duration of
Interest Period (if applicable) of each Loan of each Class made by each Lender
to the Company, and each payment made on account of the principal thereof, shall
be recorded by such Lender on its books and, prior to any transfer of the Note
evidencing the Loans of such Class held by it, endorsed by such Lender on the
schedule attached to such Note or any continuation thereof; PROVIDED that the
failure of such Lender to make any such recordation or endorsement shall not
affect the obligations of the Company to make a payment when due of any amount
owing hereunder or under such Note in respect of the Loans to be evidenced by
such Note.
(f) No Lender shall be entitled to have its Notes subdivided, by
exchange for promissory notes of lesser denominations or otherwise, except in
connection with a permitted assignment of all or any portion of such Lender's
relevant Commitment, Loans and Notes pursuant to Section 12.06(b) hereof.
2.08 OPTIONAL PREPAYMENTS AND CONVERSIONS OR CONTINUATIONS OF
LOANS. Subject to Section 4.04 hereof, the Company shall have the right to
prepay Loans, or to Convert Loans of one Type into Loans of another Type or to
Continue Eurodollar Loans, at any time or from time to time, PROVIDED that: (a)
the Company shall give the Agent notice of each such prepayment, Conversion or
Continuation as provided in Section 4.05 hereof (and, upon the date specified in
any such notice of prepayment, the amount to be prepaid shall become due and
payable hereunder); (b) prepayments of the Term Loans, the Repurchase Loans and
the CapEx Loans shall be applied among such Loans pro rata in accordance with
the outstanding principal amounts thereof, (c) prepayments of the CapEx Loans
shall not be made prior to the earlier of the first CapEx Loan Principal Payment
Date and the payment in full of the Term Loans and the Repurchase Loans, (d)
prepayment of Term Loans, Repurchase Loans and CapEx Loans shall be made pro
rata among the respective installments thereof; and (e) the Company shall not
have the right to Convert Repurchase Loans. Notwithstanding the foregoing, and
without limiting the
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rights and remedies of the Lenders under Section 10 hereof, in the event that
any Event of Default shall have occurred and be continuing, the Agent may (and
at the request of the Majority Lenders shall) suspend the right of the Company
to Convert any Loan into a Eurodollar Loan, or to Continue any Loan as a
Eurodollar Loan, in which event all Loans shall be Converted (on the last day(s)
of the respective Interest Periods therefor) or Continued, as the case may be,
as Base Rate Loans.
2.09 MANDATORY PREPAYMENTS AND REDUCTIONS OF
COMMITMENTS.
(a) SALE OF ASSETS. Without limiting the obligation of the
Company to obtain the consent of the Majority Lenders pursuant to Section 9.05
hereof to any Disposition not otherwise permitted hereunder, in the event that
the Net Available Proceeds of any Disposition (herein, the "CURRENT
DISPOSITION"), and of all prior Dispositions as to which a prepayment has not
yet been made under this Section 2.09(a), shall exceed $250,000 then, no later
than five Business Days prior to the occurrence of the Current Disposition, the
Company will deliver to the Lenders a statement, certified by the chief
financial officer of the Company, in form and detail reasonably satisfactory to
the Agent, of the amount of the Net Available Proceeds of the Current
Disposition and of all such prior Dispositions and will prepay the Loans (and/or
provide cover for Letter of Credit Liabilities as specified in clause (i)
below), and the Commitments shall be subject to automatic reduction, in an
aggregate amount equal to 100% of the Net Available Proceeds of the Current
Disposition and such prior Dispositions, such prepayment and reduction to be
effected in each case in the manner and to the extent specified in clause (h)(1)
of this Section 2.09.
(b) DEBT ISSUANCE. Without limiting the obligation of the Company
to obtain the consent of the Majority Lenders pursuant to Section 9.07 hereof to
the incurrence of any Indebtedness not otherwise permitted hereunder, upon the
receipt by the Company or any of its Subsidiaries of the proceeds of any
Indebtedness incurred after the Closing Date (other than Indebtedness described
in clause (d), (e) or (f) of Section 9.07 hereof), the Company shall prepay the
Loans (and/or provide cover for Letter of Credit Liabilities as specified in
clause (i) below), and the Commitments shall be subject to automatic reduction,
in an aggregate amount equal to 100% of the Net Available Proceeds thereof, such
prepayment and reduction to be effected in each case in the manner and to the
extent specified in clause (h)(1) of this Section 2.09.
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(c) EQUITY ISSUANCE. Upon any Equity Issuance, the Company shall
prepay the Loans (and/or provide cover for Letter of Credit Liabilities as
specified in clause (i) below), and the Commitments shall be subject to
automatic reduction, in an aggregate amount equal to the Net Available Proceeds
thereof, such prepayment and reduction to be effected in each case in the manner
and to the extent specified in clause (h)(1) of this Section 2.09, PROVIDED that
(1) if the chief financial officer of the Company
certifies to the Agent that, without effecting an Equity
Issuance, the Company will not be able to pay principal of or
interest on the Loans when due, all Net Available Proceeds of
such Equity Issuance shall be applied directly by the Person
making the equity investment to the payment of such principal
and/or interest; and
(2) if the Majority Lenders shall have expressly approved
an Investment or other acquisition by the Company or any of its
Subsidiaries (which approval may be withheld by the Majority
Lenders in their sole discretion) that was proposed by the
Company to the Lenders and the written materials furnished to the
Lenders describing such Investment or other acquisition described
in reasonable detail an Equity Issuance that would be used to
finance such Investment or acquisition, none of the Net Available
Proceeds of such Equity Issuance shall be required to be applied
to the prepayment of the Loans or the reduction of the
Commitments.
PROVIDED FURTHER that, notwithstanding anything to the contrary in this Section
2.09, so long as any Repurchase Loans are outstanding or any portion of the Put
Amount is due and payable:
(A) before effecting any other prepayments or
reductions of Commitments pursuant to this Section
2.09(c), the Company shall repay in full the Repurchase
Loans and pay in full the Put Amount (to the extent not
paid or the underlying put expired); and
(B) prior to the payment in full of the principal
of all Repurchase Loans and the payment in full of the Put
Amount (to the extent not paid or the underlying put
expired), the amount that the Company is required to
prepay (and the amount
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of Commitment reductions required) under this Section
2.09(c) shall be equal to 100% of the Net Available
Proceeds of such Equity Issuance.
(d) CASUALTY EVENTS. Not later than 60 days following the receipt
by any Obligor of the proceeds of insurance, condemnation award or other
compensation in respect of any Casualty Event affecting any Property of any
Obligor (or upon such earlier date as the Obligor shall have determined not to
repair or replace the Property affected by such Casualty Event), or upon the
receipt by any Obligor of the proceeds of any key-man life insurance policy, the
Company shall prepay the Loans (and/or provide cover for Letter of Credit
Liabilities as specified in clause (i) below), and the Commitments shall be
subject to automatic reduction, in an aggregate amount, if any, equal to 100% of
the Net Available Proceeds of such Casualty Event not theretofore applied to the
repair or replacement of such Property or 100% of the proceeds of the key-man
life insurance policy, as applicable, such prepayment and reduction to be
effected in each case in the manner and to the extent specified in clause (h)(1)
of this Section 2.09. Nothing in this clause (d) shall be deemed to limit any
obligation of any Obligor pursuant to any of the Security Documents to remit to
a collateral or similar account (including, without limitation, the Collateral
Account) maintained by the Agent pursuant to any of the Security Documents the
proceeds of insurance, condemnation award or other compensation received in
respect of any Casualty Event.
(e) EXCESS CASH. Not later than 30 days after the last day of
each month, commencing with the month of August, 1995 and ending with the month
of March, 1997, the Company shall prepay the Loans (and/or provide cover for
Letter of Credit Liabilities as provided in clause (i) below), and the
Commitments shall be subject to automatic termination, in an aggregate amount
equal to the Excess Cash as of such day, such prepayment and reduction to be
effected in each case in the manner and to the extent specified in clause (h)(2)
of this Section 2.09.
(f) EXCESS CASH FLOW. Not later than the date 90 days after the
end of each fiscal year, commencing with the fiscal year commencing on January
1, 1996, the Company shall prepay the Loans (and/or provide cover for Letter of
Credit Liabilities as specified in clause (i) below), and the Commitments shall
be subject to automatic reduction, in an aggregate amount equal to 75% of Excess
Cash Flow for such fiscal year (computed on the basis of the financial
statements provided to the Agent pursuant to Section 9.01(d) hereof), such
prepayment and reduction to be
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effected in each case in the manner and to the extent specified
in clause (h)(1) of this Section 2.09.
(g) PROJECT DEVELOPMENT FEES. Not later than 15 Business Days
following the receipt by any Obligor of any Project Development Fees (unless the
amount of the Net Available Proceeds of such Project Development Fees is less
than $250,000), the Company shall prepay the Loans (and/or provide cover for
Letter of Credit Liabilities as specified in clause (i) below), and the
Commitments shall be subject to automatic reduction, in an aggregate amount, if
any, equal to 75% of such Net Available Proceeds, such prepayment and reduction
to be effected in each case in the manner and to the extent specified in clause
(h)(1) of this Section 2.09.
(h) APPLICATION.
Prepayments and reductions of Commitments described in the above
clauses of this Section 2.09 (other than in clause (e) above) shall be
effected as follows:
(i) first, the amount of the prepayment specified in such
clauses shall be applied pro rata among the Term Loans, the
Repurchase Loans and the CapEx Loans (but, in the case of CapEx
Loans, only after the first CapEx Loan Principal Payment Date)
then outstanding, in each case pro rata among the outstanding
installments thereof;
(ii) second, on and prior to the first CapEx Loan
Principal Payment Date, the CapEx Loan Commitments shall be
reduced in an amount equal to any excess over the amount referred
to in clause (i) above (and to the extent that, after giving
effect to such reduction, the aggregate principal amount of the
CapEx Loans would exceed the CapEx Loan Commitments, the Company
shall prepay CapEx Loans in an aggregate amount equal to such
excess); and
(iii) third, the Revolving Credit Commitments shall be
automatically reduced in an amount equal to any excess over the
amounts referred to in clauses (i) and (ii) above (and to the
extent that, after giving effect to such reduction, the aggregate
principal amount of the Revolving Credit Loans would exceed the
Revolving Credit Commitments, the Company shall prepay Revolving
Credit Loans in an aggregate amount equal to such excess).
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(2) Prepayments and reductions of Commitments described in the
above clause (e) of this Section 2.09 shall be effected as follows:
(i) first, prior to the CapEx Loan Commitment Termination
Date, the amount of the prepayment specified in such clauses
shall be applied to the then outstanding principal amount of
CapEx Loans, and on and after the CapEx Loan Commitment
Termination Date, such amount shall be applied pro rata to the
installments of the CapEx Loans then outstanding;
(ii) second, any excess over the amount referred to in
clause (i) shall be applied pro rata to the installments of the
Term Loans then outstanding; and
(iii) third, the Revolving Credit Commitments shall be
automatically reduced in an amount equal to any excess over the
amounts referred to in clauses (i) and (ii) above (and to the
extent that, after giving effect to such reduction, the aggregate
principal amount of the Revolving Credit Loans would exceed the
Revolving Credit Commitments, the Company shall prepay Revolving
Credit Loans in an aggregate amount equal to such excess).
(i) COVER FOR LETTER OF CREDIT LIABILITIES. In the event that the
Company shall be required pursuant to this Section 2.09 to provide cover for
Letter of Credit Liabilities, the Company shall effect the same by paying to the
Agent immediately available funds in an amount equal to the required amount,
which funds shall be retained by the Agent in the Collateral Account (as
provided therein as collateral security in the first instance for Letter of
Credit Liabilities) until such time as the Letter of Credit shall have been
terminated and all of the Letter of Credit Liabilities paid in full.
2.10 LETTERS OF CREDIT. Subject to the terms and conditions of
this Agreement, and subject to the prior consent of the Letter of Credit Issuer,
CapEx Loan Commitments may be utilized, upon the request of the Company, in
addition to the CapEx Loans provided for by Section 2.01(c) hereof, by the
issuance by the Letter of Credit Issuer of letters of credit (collectively,
"LETTERS OF CREDIT") for account of the Company or any of its Subsidiaries (as
specified by the Company), PROVIDED that in no event shall the aggregate amount
of all Letter of Credit Liabilities, together with the aggregate principal
amount of the CapEx Loans, exceed the aggregate amount of the CapEx Loan
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Commitments as in effect from time to time. The following additional provisions
shall apply to Letters of Credit:
(a) The Company shall give the Agent at least three Business
Days' irrevocable prior notice (effective upon receipt) specifying the
Business Day (which shall be no later than 30 days preceding the CapEx
Loan Commitment Termination Date) each Letter of Credit is to be issued
and the account party or parties therefor and describing in reasonable
detail the proposed terms of such Letter of Credit (including the
beneficiary thereof) and the nature of the transactions or obligations
proposed to be supported thereby (including whether such Letter of
Credit is to be a commercial letter of credit or a standby letter of
credit). Upon receipt of any such notice, the Agent shall advise the
Letter of Credit Issuer of the contents thereof.
(b) On each day during the period commencing with the issuance by
the Letter of Credit Issuer of any Letter of Credit and until such
Letter of Credit shall have expired or been terminated, the CapEx Loan
Commitment of each Lender shall be deemed to be utilized for all
purposes of this Agreement in an amount equal to such Lender's CapEx
Loan Commitment Percentage of the then undrawn face amount of such
Letter of Credit. Each Lender (other than the Letter of Credit Issuer)
agrees that, upon the issuance of any Letter of Credit hereunder, it
shall automatically acquire a participation in the Letter of Credit
Issuer's liability under such Letter of Credit in an amount equal to
such Lender's CapEx Loan Commitment Percentage of such liability, and
each Lender (other than the Letter of Credit Issuer) thereby shall
absolutely, unconditionally and irrevocably assume, as primary obligor
and not as surety, and shall be unconditionally obligated to the Letter
of Credit Issuer to pay and discharge when due, its CapEx Loan
Commitment Percentage of the Letter of Credit Issuer's liability under
such Letter of Credit.
(c) Upon receipt from the beneficiary of any Letter of Credit of
any demand for payment under such Letter of Credit, the Letter of Credit
Issuer shall promptly notify the Company (through the Agent) of the
amount to be paid by the Letter of Credit Issuer as a result of such
demand and the date on which payment is to be made by the Letter of
Credit Issuer to such beneficiary in respect of such demand.
Notwithstanding the identity of the account party of any Letter of
Credit, the Company hereby unconditionally agrees to pay and reimburse
the Agent for account of the Letter of
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Credit Issuer for the amount of each demand for payment under such
Letter of Credit at or prior to the date on which payment is to be made
by the Letter of Credit Issuer to the beneficiary thereunder, without
presentment, demand, protest or other formalities of any kind.
(d) Forthwith upon its receipt of a notice referred to in clause
(c) of this Section 2.10, the Company shall advise the Agent whether or
not the Company intends to borrow hereunder to finance its obligation to
reimburse the Letter of Credit Issuer for the amount of the related
demand for payment and, if it does, submit a notice of such borrowing as
provided in Section 4.05 hereof. In the event that the Company fails to
so advise the Agent, or if the Company fails to reimburse the Letter of
Credit Issuer for a payment under a Letter of Credit by the date of such
payment, the Agent shall give each Lender prompt notice of the amount of
the demand for payment, specifying such Lender's CapEx Loan Commitment
Percentage of the amount of the related demand for payment.
(e) Each Lender (other than the Letter of Credit Issuer) shall
pay to the Agent for account of the Letter of Credit Issuer at the
Principal Office in Dollars and in immediately available funds, the
amount of such Lender's CapEx Loan Commitment Percentage of any payment
under a Letter of Credit upon notice by the Letter of Credit Issuer
(through the Agent) to such Lender requesting such payment and
specifying such amount. Each such Lender's obligation to make such
payment to the Agent for account of the Letter of Credit Issuer under
this clause (e), and the Letter of Credit Issuer's right to receive the
same, shall be absolute and unconditional and shall not be affected by
any circumstance whatsoever, including, without limitation, the failure
of any other Lender to make its payment under this clause (e), the
financial condition of the Company (or any other account party), the
existence of any Default or the termination of the Commitments. Each
such payment to the Letter of Credit Issuer shall be made without any
offset, abatement, withholding or reduction whatsoever. If any Lender
shall default in its obligation to make any such payment to the Agent
for account of the Letter of Credit Issuer, for so long as such default
shall continue the Agent may at the request of the Letter of Credit
Issuer withhold from any payments received by the Agent under this
Agreement or any Note for account of such Lender the amount so in
default and, to the extent so withheld, pay the same to the
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Letter of Credit Issuer in satisfaction of such defaulted obligation.
(f) Upon the making of each payment by a Lender to the Letter of
Credit Issuer pursuant to clause (e) above in respect of any Letter of
Credit, such Lender shall, automatically and without any further action
on the part of the Agent, the Letter of Credit Issuer or such Lender,
acquire (i) a participation in an amount equal to such payment in the
Reimbursement Obligation owing to the Letter of Credit by the Company
hereunder and under the Letter of Credit Documents relating to such
Letter of Credit and (ii) a participation in a percentage equal to such
Lender's CapEx Loan Commitment Percentage in any interest or other
amounts payable by the Company hereunder and under such Letter of Credit
Documents in respect of such Reimbursement Obligation (other than the
commissions, charges, costs and expenses payable to the Letter of Credit
pursuant to clause (g) of this Section 2.04). Upon receipt by the Letter
of Credit Issuer from or for account of the Company of any payment in
respect of any Reimbursement Obligation or any such interest or other
amount (including by way of setoff or application of proceeds of any
collateral security) the Letter of Credit Issuer shall promptly pay to
the Agent for account of each Lender entitled thereto, such Lender's
CapEx Loan Commitment Percentage of such payment, each such payment by
the Letter of Credit Issuer to be made in the same money and funds in
which received by the Letter of Credit Issuer. In the event any payment
received by the Letter of Credit Issuer and so paid to the Lenders
hereunder is rescinded or must otherwise be returned by the Letter of
Credit Issuer, each Lender shall, upon the request of the Letter of
Credit Issuer (through the Agent), repay to the Letter of Credit Issuer
(through the Agent) the amount of such payment paid to such Lender, with
interest at the rate specified in clause (j) of this Section 2.10.
(g) The Company shall pay to the Agent for account of each Lender
(ratably in accordance with their respective Commitment Percentages) a
letter of credit fee in respect of each Letter of Credit in an amount
equal to 3% per annum of the daily average undrawn face amount of such
Letter of Credit for the period from and including the date of issuance
of such Letter of Credit (i) in the case of a Letter of Credit that
expires in accordance with its terms, to and including such expiration
date and (ii) in the case of a Letter of Credit that is drawn in full or
is otherwise terminated other than on the stated expiration date of such
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Letter of Credit, to but excluding the date such Letter of Credit is
drawn in full or is terminated (such fee to be non-refundable, to be
paid in arrears on each Quarterly Date and on the CapEx Loan Commitment
Termination Date and to be calculated for any day after giving effect to
any payments made under such Letter of Credit on such day). In addition,
the Company shall pay to the Agent for account of the Letter of Credit
Issuer a fronting fee in respect of each Letter of Credit in an amount
equal to 3/4 of 1% per annum of the daily average undrawn face amount of
such Letter of Credit for the period from and including the date of
issuance of such Letter of Credit (i) in the case of a Letter of Credit
that expires in accordance with its terms, to and including such
expiration date and (ii) in the case of a Letter of Credit that is drawn
in full or is otherwise terminated other than on the stated expiration
date of such Letter of Credit, to but excluding the date such Letter of
Credit is drawn in full or is terminated (such fee to be non-refundable,
to be paid in arrears on each Quarterly Date and on the CapEx Loan
Commitment Termination Date and to be calculated for any day after
giving effect to any payments made under such Letter of Credit on such
day) plus all commissions, charges, costs and expenses in the amounts
customarily charged by the Letter of Credit Issuer from time to time in
like circumstances with respect to the issuance of each Letter of Credit
and drawings and other transactions relating thereto.
(h) Promptly following the end of each calendar month, the Letter
of Credit Issuer shall deliver (through the Agent) to each Lender and
the Company a notice describing the aggregate amount of all Letters of
Credit outstanding at the end of such month. Upon the request of any
Lender from time to time, the Letter of Credit Issuer shall deliver any
other information reasonably requested by such Lender with respect to
each Letter of Credit then outstanding.
(i) The issuance by the Letter of Credit Issuer of each Letter of
Credit shall, in addition to the conditions precedent set forth in
Section 7 hereof, be subject to the conditions precedent that (i) such
Letter of Credit shall be in such form, contain such terms and support
such transactions as shall be satisfactory to the Letter of Credit
Issuer consistent with its then current practices and procedures with
respect to letters of credit of the same type and (ii) the Company shall
have executed and delivered such applications, agreements and other
instruments relating to such Letter of Credit as the Letter of Credit
Issuer
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shall have reasonably requested consistent with its then current
practices and procedures with respect to letters of credit of the same
type, PROVIDED that in the event of any conflict between any such
application, agreement or other instrument and the provisions of this
Agreement or any Security Document, the provisions of this Agreement and
the Security Documents shall control.
(j) To the extent that any Lender shall fail to pay any amount
required to be paid pursuant to clause (e) or (f) of this Section 2.10
on the due date therefor, such Lender shall pay interest to the Letter
of Credit Issuer (through the Agent) on such amount from and including
such due date to but excluding the date such payment is made, PROVIDED
that if such Lender shall fail to make such payment to the Letter of
Credit Issuer within three Business Days of such due date, then,
retroactively to the due date, such Lender shall be obligated to pay
interest on such amount at the Post-Default Rate.
(k) The issuance by the Letter of Credit Issuer of any
modification or supplement to any Letter of Credit hereunder shall be
subject to the same conditions applicable under this Section 2.10 to the
issuance of new Letters of Credit, and no such modification or
supplement shall be issued hereunder unless either (i) the respective
Letter of Credit affected thereby would have complied with such
conditions had it originally been issued hereunder in such modified or
supplemented form or (ii) each Lender shall have consented thereto.
The Company hereby indemnifies and holds harmless each Lender and the Agent from
and against any and all claims and damages, losses, liabilities, costs or
expenses that such Lender or the Agent may incur (or that may be claimed against
such Lender or the Agent by any Person whatsoever) by reason of or in connection
with the execution and delivery or transfer of or payment or refusal to pay by
the Letter of Credit Issuer under any Letter of Credit; PROVIDED that the
Company shall not be required to indemnify any Lender or the Agent for any
claims, damages, losses, liabilities, costs or expenses to the extent, but only
to the extent, caused by (x) the willful misconduct or gross negligence of the
Letter of Credit Issuer in determining whether a request presented under any
Letter of Credit complied with the terms of such Letter of Credit or (y) in the
case of the Letter of Credit Issuer, such Lender's failure to pay under any
Letter of Credit after the presentation to it of a request strictly complying
with the terms and conditions of such Letter of Credit.
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Nothing in this Section 2.10 is intended to limit the other obligations of the
Company, any Lender or the Agent under this Agreement.
Section 3. PAYMENTS OF PRINCIPAL AND INTEREST.
3.01 REPAYMENT OF LOANS AND OTHER AMOUNTS.
(a) The Company hereby promises to pay to the Agent for account
of each Lender the entire outstanding principal amount of such Lender's
Revolving Credit Loans, and each Revolving Credit Loan shall mature, on the
Revolving Credit Commitment Termination Date.
(b) The Company hereby promises to pay to the Agent for account
of each Lender the principal of such Lender's Term Loans in 25 quarterly
installments, payable on the Term Loan Principal Payment Dates occurring in the
following months as follows:
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PRINCIPAL PAYMENT DATE AMOUNT OF INSTALLMENT ($)
---------------------- -------------------------
December 1996 $1,200,000
March 1997 750,000
June 1997 750,000
September 1997 750,000
December 1997 750,000
March 1998 750,000
June 1998 750,000
September 1998 750,000
December 1998 750,000
March 1999 875,000
June 1999 875,000
September 1999 875,000
December 1999 875,000
March 2000 937,500
June 2000 937,500
September 2000 937,500
December 2000 937,500
March 2001 1,062,500
June 2001 1,062,500
September 2001 1,062,500
December 2001 1,062,500
March 2002 1,125,000
June 2002 1,125,000
September 2002 1,125,000
December 2002 1,125,000
If the Company does not borrow the full amount of the aggregate Term Loan
Commitments on or before the Term Loan Commitment Termination Date, the
shortfall shall be applied to reduce the foregoing installments ratably.
(c) The Company hereby promises to pay to the Agent for account
of each Lender the principal of such Lender's CapEx Loans outstanding on the
CapEx Loan Commitment Termination Date in 20 equal quarterly installments
payable on the CapEx Loan
Principal Payment Dates.
(d) The Company hereby promises to pay to the Agent for account
of each Lender the principal of such Lender's Repurchase Loan outstanding on the
Repurchase Loan Commitment Termination Date in two installments payable on the
Repurchase Loan Principal Payment Dates, the first such installment in an amount
equal to $1,043,400 and the second in amount equal to the balance thereof.
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(e) The Company hereby promises to pay to ING all amounts payable
under the ING Stock Option Agreement in accordance with the terms thereof,
including (without limitation) the Put Amount.
3.02 INTEREST. The Company hereby promises to pay to the Agent
for account of each Lender interest on the unpaid principal amount of each Loan
made by such Lender for the period from and including the date of such Loan to
but excluding the date such Loan shall be paid in full, at the following rates
per annum:
(a) during such periods as such Loan is a Base Rate Loan, the
Base Rate (as in effect from time to time) PLUS the Applicable Margin;
(b) during such periods as such Loan is a Eurodollar Loan, for
each Interest Period relating thereto, the Eurodollar Rate for such Loan
for such Interest Period PLUS the Applicable Margin.
Notwithstanding the foregoing, the Company hereby promises to pay to the Agent
for account of each Lender interest at the applicable Post-Default Rate on any
principal of any Loan made by such Lender, on any Reimbursement Obligation held
by such Lender, and on any other amount payable by the Company hereunder or
under the Notes held by such Lender to or for account of such Lender, that shall
not be paid in full when due (whether at stated maturity, by acceleration, by
mandatory prepayment or otherwise), for the period from and including the due
date thereof to but excluding the date the same is paid in full. Accrued
interest on each Loan shall be payable (i) in the case of a Base Rate Loan,
monthly on the Monthly Dates, (ii) in the case of a Eurodollar Loan, on the last
day of each Interest Period therefor and, if such Interest Period is longer than
three months, at three-month intervals following the first day of such Interest
Period, and (iii) in the case of any Loan, upon the payment or prepayment
thereof or the Conversion of such Loan to a Loan of another Type (but only on
the principal amount so paid, prepaid or Converted), except that interest
payable at the Post-Default Rate shall be payable from time to time on demand.
Promptly after the determination of any interest rate provided for herein or any
change therein, the Agent shall give notice thereof to the Lenders to which such
interest is payable and to the Company.
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Section 4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS;
ETC.
4.01 PAYMENTS.
(a) Except to the extent otherwise provided herein, all payments
of principal, interest, Reimbursement Obligations and other amounts to be made
by the Company under this Agreement and the Notes and the Fee Letter, and,
except to the extent otherwise provided therein, all payments to be made by the
Obligors under any other Basic Document, shall be made in Dollars, in
immediately available funds, without deduction, set-off or counterclaim, to the
Agent at account number 600-07- 116 (ABA No. 021000238) maintained by the Agent
with Morgan Guaranty Trust Company of New York, not later than 2:00 p.m. New
York time on the date on which such payment shall become due (each such payment
made after such time on such due date to be deemed to have been made on the next
succeeding Business Day).
(b) Any Lender for whose account any such payment is to be made
may (but shall not be obligated to) debit the amount of any such payment that is
not made by such time to any ordinary deposit account of the Company with such
Lender (with notice to the Company and the Agent).
(c) The Company shall, at the time of making each payment under
this Agreement or any Note for account of any Lender, specify to the Agent
(which shall so notify the intended recipient(s) thereof) the Loans,
Reimbursement Obligations or other amounts payable by the Company hereunder to
which such payment is to be applied (and in the event that the Company fails to
so specify, or if an Event of Default has occurred and is continuing, the Agent
may distribute such payment to the Lenders for application in such manner as it
or the Majority Lenders, subject to Section 4.02 hereof, may determine to be
appropriate).
(d) Each payment received by the Agent under this Agreement or
any Note for account of any Lender shall be paid by the Agent promptly to such
Lender, in immediately available funds, for account of such Lender's Applicable
Lending Office for the Loan or other obligation in respect of which such payment
is made.
(e) If the due date of any payment under this Agreement or any
Note would otherwise fall on a day that is not a Business Day, such date shall
be extended to the next succeeding Business Day, and interest shall be payable
for any principal so extended for the period of such extension.
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4.02 PRO RATA TREATMENT. Except to the extent otherwise provided
herein: (a) each borrowing of Loans of a particular Class from the Lenders under
Section 2.01 hereof shall be made from the Lenders, each payment of a commitment
fee under Section 2.04 hereof in respect of Commitments of a particular Class
shall be made for account of the Lenders, and each termination or reduction of
the amount of the Commitments of a particular Class under Section 2.03 hereof
shall be applied to the respective Commitments of such Class of the Lenders, pro
rata according to the amounts of their respective Commitments of such Class; (b)
the making, Conversion and Continuation of Revolving Credit Loans, CapEx Loans,
Term Loans and Repurchase Loans of a particular Type (other than Conversions
provided for by Section 5.04 hereof) shall be made pro rata among the Lenders
according to the amounts of their respective Revolving Credit Commitments, CapEx
Loan Commitments, Term Loan Commitments and Repurchase Loan Commitments (in the
case of making of Loans) or their respective Revolving Credit Loans, CapEx Loans
and Term Loans (in the case of Conversions and Continuations of Loans) and the
then current Interest Period for each Loan of such Type shall be coterminous;
(c) each payment or prepayment of principal of Revolving Credit Loans, CapEx
Loans, Term Loans or Repurchase Loans by the Company shall be made for account
of the Lenders pro rata in accordance with the respective unpaid principal
amounts of the Loans of such Class held by them; and (d) each payment of
interest on Revolving Credit Loans, CapEx Loans, Term Loans and Repurchase Loans
by the Company shall be made for the account of the Lenders pro rata in
accordance with the amounts of interest on such Loans then due and payable to
the Lenders.
4.03 COMPUTATIONS. Except as otherwise provided herein, interest
on Loans and Reimbursement Obligations and commitment fees shall be computed on
the basis of a year of 360 days and actual days elapsed (including the first day
but excluding the last day) occurring in the period for which payable.
4.04 MINIMUM AMOUNTS. Except for mandatory prepayments made
pursuant to Section 2.09 hereof and Conversions or prepayments made pursuant to
Section 5.04 hereof, each borrowing, Conversion and partial prepayment of
principal of Loans shall be in an aggregate amount at least equal to $25,000 (or
$250,000 in the case of Eurodollar Loans) or a larger multiple of $25,000
(borrowings, Conversions or prepayments of or into Loans of different Types or,
in the case of Eurodollar Loans, having different Interest Periods at the same
time hereunder to be deemed separate borrowings, Conversions and
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prepayments for purposes of the foregoing, one for each Type or
Interest Period).
4.05 CERTAIN NOTICES. Notices by the Company to the Agent of
terminations or reductions of the Commitments, of borrowings, Conversions,
Continuations and optional prepayments of Loans and of Classes of Loans, of
Types of Loans and of the duration of Interest Periods shall be irrevocable and
shall be effective only if received by the Agent not later than 11:00 a.m. New
York time on the number of Business Days prior to the date of the relevant
termination, reduction, borrowing, Conversion, Continuation or prepayment or the
first day of such Interest Period specified below:
Number of
Business
NOTICE
DAYS PRIOR
Termination or reduction
of Commitments
3
Borrowing or prepayment of,
or Conversions into,
Base Rate Loans
same day
Borrowing or prepayment of,
Conversions into, Continuations
as, or duration of Interest
Period for, Eurodollar Loans
3
Each such notice of termination or reduction shall specify the amount and the
Class of the Commitments to be terminated or reduced. Each such notice of
borrowing, Conversion, Continuation or optional prepayment shall specify the
Class of Loans to be borrowed, Converted, Continued or prepaid and the amount
(subject to Section 4.04 hereof) and Type of each Loan to be borrowed,
Converted, Continued or prepaid (and, in the case of a Conversion, the Type of
Loan to result from such Conversion) and the date of borrowing, Conversion,
Continuation or optional prepayment (which shall be a Business Day). Each such
notice of the duration of an Interest Period shall specify the Loans to which
such Interest Period is to relate. The Agent shall
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promptly notify the Lenders of the contents of each such notice. In the event
that the Company fails to select the Type of Loan, or the duration of any
Interest Period for any Eurodollar Loan, within the time period and otherwise as
provided in this Section 4.05, such Loan (if outstanding as a Eurodollar Loan)
will be automatically Converted into a Base Rate Loan on the last day of the
then current Interest Period for such Loan or (if outstanding as a Base Rate
Loan) will remain as, or (if not then outstanding) will be made as, a Base Rate
Loan.
4.06 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Agent shall
have been notified by a Lender or the Company (the "PAYOR") prior to the date on
which the Payor is to make payment to the Agent of (in the case of a Lender) the
proceeds of a Loan to be made by such Lender hereunder or (in the case of the
Company) a payment to the Agent for account of one or more of the Lenders
hereunder (such payment being herein called the "REQUIRED PAYMENT"), which
notice shall be effective upon receipt, that the Payor does not intend to make
the Required Payment to the Agent, the Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall not
be required to), make the amount thereof available to the intended recipient(s)
on such date; and, if the Payor has not in fact made the Required Payment to the
Agent, the recipient(s) of such payment shall, on demand, repay to the Agent the
amount so made available together with interest thereon in respect of each day
during the period commencing on the date (the "ADVANCE DATE") such amount was so
made available by the Agent until the date the Agent recovers such amount at a
rate per annum equal to the Federal Funds Rate for such day and, if such
recipient(s) shall fail promptly to make such payment, the Agent shall be
entitled to recover such amount, on demand, from the Payor, together with
interest as aforesaid, PROVIDED that if neither the recipient(s) nor the Payor
shall return the Required Payment to the Agent within three Business Days of the
Advance Date, then, retroactively to the Advance Date, the Payor and the
recipient(s) shall each be obligated to pay interest on the Required Payment as
follows:
(i) if the Required Payment shall represent a payment to be made
by the Company to the Lenders, the Company and the recipient(s) shall
each be obligated retroactively to the Advance Date to pay interest in
respect of the Required Payment at the Post-Default Rate (and, in case
the recipient(s) shall return the Required Payment to the Agent, without
limiting the obligation of the Company under Section 3.02 hereof to pay
interest to such recipient(s) at
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the Post-Default Rate in respect of the Required Payment)
and
(ii) if the Required Payment shall represent proceeds of a Loan to
be made by the Lenders to the Company, the Payor and the Company shall
each be obligated retroactively to the Advance Date to pay interest in
respect of the Required Payment at the rate of interest provided for
such Required Payment pursuant to Section 3.02 hereof (and, in case the
Company shall return the Required Payment to the Agent, without limiting
any claim the Company may have against the Payor in respect of the
Required Payment).
4.07 SHARING OF PAYMENTS, ETC.
(a) The Company agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien or counterclaim a Lender may
otherwise have, each Lender shall be entitled, at its option, to offset balances
held by it for account of the Company at any of its offices, in Dollars or in
any other currency, against any principal of or interest on any of such Lender's
Loans, Reimbursement Obligations or any other amount payable to such Lender
hereunder, that is not paid when due (regardless of whether such balances are
then due to the Company), in which case it shall promptly notify the Company and
the Agent thereof, PROVIDED that such Lender's failure to give such notice shall
not affect the validity thereof.
(b) If any Lender shall obtain from any Obligor payment of any
principal of or interest on any Loan or Letter of Credit Liability owing to it
or payment of any other amount under this Agreement or any other Basic Document
through the exercise of any right of set-off, banker's lien or counterclaim or
similar right or otherwise (other than from the Agent as provided herein), and,
as a result of such payment, such Lender shall have received a greater
percentage of the principal of or interest on the Loans, Letter of Credit
Liabilities or such other amounts then due hereunder or thereunder by such
Obligor to such Lender than the percentage received by any other Lender, it
shall promptly purchase from such other Lenders participations in (or, if and to
the extent specified by such Lender, direct interests in) the Loans, Letter of
Credit Liabilities or such other amounts, respectively, owing to such other
Lenders (or in interest due thereon, as the case may be) in such amounts, and
make such other adjustments from time to time as shall be equitable, to the end
that all the Lenders shall share the benefit of such excess payment (net of any
expenses that may be incurred by such Lender in obtaining or preserving such
excess
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payment) pro rata in accordance with the unpaid principal of and/or interest on
the Loans, Letter of Credit Liabilities or such other amounts, respectively,
owing to each of the Lenders. To such end all the Lenders shall make appropriate
adjustments among themselves (by the resale of participations sold or otherwise)
if such payment is rescinded or must otherwise be restored.
(c) The Company agrees that any Lender so purchasing such a
participation (or direct interest) may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Lender were a direct holder of Loans or other amounts (as the case
may be) owing to such Lender in the amount of such participation.
(d) Nothing contained herein shall require any Lender to exercise
any such right or shall affect the right of any Lender to exercise, and retain
the benefits of exercising, any such right with respect to any other
indebtedness or obligation of any Obligor. If, under any applicable bankruptcy,
insolvency or other similar law, any Lender receives a secured claim in lieu of
a set-off to which this Section 4.07 applies, such Lender shall, to the extent
practicable, exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Lenders entitled under this Section 4.07 to
share in the benefits of any recovery on such secured claim.
Section 5. YIELD PROTECTION, ETC.
5.01 ADDITIONAL COSTS.
(a) The Company shall pay directly to each Lender from time to
time such amounts as such Lender may determine to be necessary to compensate
such Lender for any costs actually incurred by such Lender that such Lender
determines are attributable to its making or maintaining of any Eurodollar Loans
or its obligation to make any Eurodollar Loans hereunder, or any reduction in
any amount receivable by such Lender hereunder in respect of any of such Loans
or such obligation (such increases in costs and reductions in amounts receivable
being herein called "ADDITIONAL COSTS"), resulting from any Regulatory Change
that:
(i) shall subject any Lender (or its Applicable Lending
Office for any of such Loans) to any tax, duty or other charge in
respect of such Loans or its Notes or changes the basis of taxation of
any amounts payable to such Lender under this Agreement or its Notes in
respect of any
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of such Loans (excluding (A) franchise taxes imposed on it or (B)
changes in the rate of tax on the overall net income of such Lender or
of such Applicable Lending Office, in each case, by the jurisdiction in
which such Lender has its principal office or such Applicable Lending
Office); or
(ii) imposes or modifies any reserve, special deposit or
similar requirements (other than, in the case of any Lender for any
period as to which the Company is required to pay any amount under
paragraph (e) below, the reserves and "Eurocurrency liabilities" under
Regulation D referred to therein) relating to any extensions of credit
or other assets of, or any deposits with or other liabilities of, such
Lender (including, without limitation, any of such Loans or any deposits
referred to in the definition of "Eurodollar Rate" in Section 1.01
hereof), or any commitment of such Lender (including, without
limitation, the Commitments of such Lender hereunder); or
(iii) imposes any other condition affecting this Agreement or
its Notes (or any of such extensions of credit or liabilities) or its
Commitments.
If any Lender requests compensation from the Company under this Section 5.01(a),
the Company may, by notice to such Lender (with a copy to the Agent), suspend
the obligation of such Lender thereafter to make or Continue Eurodollar Loans,
or to Convert Base Rate Loans into Eurodollar Loans, until the Regulatory Change
giving rise to such request ceases to be in effect (in which case the provisions
of Section 5.04 hereof shall be applicable), PROVIDED that such suspension shall
not affect the right of such Lender to receive the compensation so requested.
(b) Without limiting the effect of the provisions of paragraph
(a) of this Section 5.01, in the event that, by reason of any Regulatory Change,
any Lender either (i) incurs Additional Costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of such Lender that includes deposits by reference to which the
interest rate on Eurodollar Loans is determined as provided in this Agreement or
a category of extensions of credit or other assets of such Lender that includes
Eurodollar Loans or (ii) becomes subject to restrictions on the amount of such a
category of liabilities or assets that it may hold, then, if such Lender so
elects by notice to the Company (with a copy to the Agent), the obligation of
such Lender to make or Continue, or to Convert Base Rate Loans into, Eurodollar
Loans hereunder shall be suspended until such Regulatory Change ceases to be in
effect (in
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which case the provisions of Section 5.04 hereof shall be
applicable).
(c) Without limiting the effect of the foregoing provisions of
this Section 5.01 (but without duplication), the Company shall pay directly to
each Lender from time to time on request such amounts as such Lender may
determine to be necessary to compensate such Lender (or, without duplication,
the bank holding company of which such Lender is a subsidiary) for any costs
actually incurred by such Lender that it determines are attributable to the
maintenance by such Lender (or any Applicable Lending Office or such bank
holding company), pursuant to any law or regulation or any interpretation,
directive or request (whether or not having the force of law and whether or not
failure to comply therewith would be unlawful) of any court or governmental or
monetary authority (i) following any Regulatory Change or (ii) implementing any
risk-based capital guideline or other requirement (whether or not having the
force of law and whether or not the failure to comply therewith would be
unlawful) heretofore or hereafter issued by any government or governmental or
supervisory authority implementing at the national level the Basle Accord
(including, without limitation, the Final Risk-Based Capital Guidelines of the
Board of Governors of the Federal Reserve System (12 C.F.R. Part 208, Appendix
A; 12 C.F.R. Part 225, Appendix A) and the Final Risk-Based Capital Guidelines
of the Office of the Comptroller of the Currency (12 C.F.R. Part 3, Appendix
A)), of capital in respect of its Commitments or Loans (such compensation to
include, without limitation, an amount equal to any reduction of the rate of
return on assets or equity of such Lender (or any Applicable Lending Office or
such bank holding company) to a level below that which such Lender (or any
Applicable Lending Office or such bank holding company) could have achieved but
for such law, regulation, interpretation, directive or request). For purposes of
this Section 5.01(c) and Section 5.06 hereof, "BASLE ACCORD" shall mean the
proposals for risk-based capital framework described by the Basle Committee on
Banking Regulations and Supervisory Practices in its paper entitled
"International Convergence of Capital Measurement and Capital Standards" dated
July 1988, as amended, modified and supplemented and in effect from time to time
or any replacement thereof.
(d) Each Lender shall notify the Company of any event occurring
after the date of this Agreement entitling such Lender to compensation under
paragraph (a) or (c) of this Section 5.01 as promptly as practicable, but in any
event within 45 days, after such Lender obtains actual knowledge thereof;
PROVIDED that (i) if any Lender fails to give such notice within 45 days after
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it obtains actual knowledge of such an event, such Lender shall, with respect to
compensation payable pursuant to this Section 5.01 in respect of any costs
resulting from such event, only be entitled to payment under this Section 5.01
for costs incurred from and after the date 45 days prior to the date that such
Lender does give such notice and (ii) each Lender will designate a different
Applicable Lending Office for the Loans of such Lender affected by such event if
such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole opinion of such Lender, be
disadvantageous to such Lender, except that such Lender shall have no obligation
to designate an Applicable Lending Office located in the United States of
America. Each Lender will furnish to the Company a certificate setting forth the
basis and amount of each request by such Lender for compensation under paragraph
(a) or (c) of this Section 5.01. Determinations and allocations by any Lender
for purposes of this Section 5.01 of the effect of any Regulatory Change
pursuant to paragraph (a) or (b) of this Section 5.01, or of the effect of
capital maintained pursuant to paragraph (c) of this Section 5.01, on its costs
or rate of return of maintaining Loans or its obligation to make Loans, or on
amounts receivable by it in respect of Loans, and of the amounts required to
compensate such Lender under this Section 5.01, shall be conclusive, absent
demonstrable error, PROVIDED that such determinations and allocations are made
and attributed on a reasonable basis.
(e) Without limiting the effect of the foregoing, the Company
shall pay to each Lender on the last day of each Interest Period so long as such
Lender is maintaining reserves against "Eurocurrency liabilities" under
Regulation D (or, unless the provisions of paragraph (b) above are applicable,
so long as such Lender is, by reason of any Regulatory Change, maintaining
reserves against any other category of liabilities which includes deposits by
reference to which the interest rate on Eurodollar Loans is determined as
provided in this Agreement or against any category of extensions of credit or
other assets of such Lender (which includes any Eurodollar Loans) an additional
amount (determined by such Lender and notified to the Company through the Agent)
equal to the product of the following for each Eurodollar Loan for each day
during such Interest Period:
(i) the principal amount of such Eurodollar Loan
outstanding on such day; and
(ii) the remainder of (x) the fraction the numerator of which is
the rate (expressed as a decimal) at which interest accrues on such
Eurodollar Loan for such Interest
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Period as provided in this Agreement (less the Applicable Margin) and
the denominator of which is one MINUS the effective rate (expressed as a
decimal) at which such reserve requirements are imposed on such Lender
on such day MINUS (y) such numerator; and
(iii) 1/360.
(f) Notwithstanding anything in this Section 5.01 to the
contrary, to the extent that any Lender does not charge all of its customers who
are similarly situated to the Company in respect of any Additional Costs or
other cost or compensation referred to this Section 5.01, such Lender shall not
charge the Company for such Additional Cost or other cost or compensation.
5.02 LIMITATION ON TYPES OF LOANS. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any Eurodollar
Rate for any Interest Period:
(a) the Agent determines, which determination shall be
conclusive, that quotations of interest rates for the relevant deposits
referred to in the definition of "Eurodollar Rate" in Section 1.01
hereof are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining rates of interest for
Eurodollar Loans as provided herein; or
(b) if the Majority Lenders determine, which determination shall
be conclusive, and notify (or notifies, as the case may be) the Agent
that the relevant rates of interest referred to in the definition of
"Eurodollar Rate" in Section 1.01 hereof upon the basis of which the
rate of interest for Eurodollar Loans for such Interest Period is to be
determined do not adequately cover the cost to such Lenders of making or
maintaining Eurodollar Loans for such Interest Period;
then the Agent shall give the Company and each Lender prompt notice thereof and,
so long as such condition remains in effect, the Lenders shall be under no
obligation to make additional Eurodollar Loans, to Continue Eurodollar Loans or
to Convert Base Rate Loans into Eurodollar Loans, and the Company shall, on the
last day(s) of the then current Interest Period(s) for the outstanding
Eurodollar Loans, either prepay such Loans or Convert such Loans into Base Rate
Loans in accordance with Section 2.08 hereof.
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5.03 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to honor its obligation to make or maintain Eurodollar
Loans hereunder, then such Lender shall promptly notify the Company thereof
(with a copy to the Agent) and such Lender's obligation to make or Continue, or
to Convert Base Rate Loans into, Eurodollar Loans shall be suspended until such
time as such Lender may again make and maintain Eurodollar Loans (in which case
the provisions of Section 5.04 hereof shall be applicable).
5.04 TREATMENT OF EURODOLLAR LOANS. If the obligation of any
Lender to make Eurodollar Loans or to Continue, or to Convert Base Rate Loans
into, Eurodollar Loans shall be suspended pursuant to Section 5.01 or 5.03
hereof, such Lender's Eurodollar Loans shall be automatically Converted into
Base Rate Loans on the last day(s) of the then current Interest Period(s) for
Eurodollar Loans (or, in the case of a Conversion required by Section 5.01(b) or
5.03 hereof, on such earlier date as such Lender may specify to the Company with
a copy to the Agent) and, unless and until such Lender gives notice as provided
below that the circumstances specified in Section 5.01 or 5.03 hereof that gave
rise to such Conversion no longer exist:
(a) to the extent that such Lender's Eurodollar Loans have been
so Converted, all payments and prepayments of principal that would
otherwise be applied to such Lender's Eurodollar Loans shall be applied
instead to its Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued by such
Lender as Eurodollar Loans shall be made or Continued instead as Base
Rate Loans, and all Loans of such Lender that would otherwise be
Converted into Eurodollar Loans shall be Converted instead into (or
shall remain as) Base Rate Loans.
If such Lender gives notice to the Company with a copy to the Agent that the
circumstances specified in Section 5.01 or 5.03 hereof that gave rise to the
Conversion of such Lender's Eurodollar Loans pursuant to this Section 5.04 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans made by other Lenders are
outstanding, such Lender's Base Rate Loans shall be automatically Converted, on
the first day(s) of the next succeeding Interest Period(s) for such outstanding
Eurodollar Loans, to the extent necessary so that, after giving effect thereto,
all Loans held by the Lenders holding Eurodollar Loans
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and by such Lender are held pro rata (as to principal amounts, Types and
Interest Periods) in accordance with their respective Commitments.
5.05 COMPENSATION. The Company shall pay to the Agent for account
of each Lender, upon the request of such Lender through the Agent, such amount
or amounts as shall be sufficient (in the reasonable opinion of such Lender) to
compensate it for any loss, cost or expense actually incurred that such Lender
determines is attributable to:
(a) any payment, mandatory or optional prepayment or Conversion
of a Eurodollar Loan made by such Lender for any reason (including,
without limitation, the acceleration of the Loans pursuant to Section 10
hereof) on a date other than the last day of the Interest Period for
such Loan; or
(b) any failure by the Company for any reason (including, without
limitation, the failure of any of the conditions precedent specified in
Section 7 hereof to be satisfied) to borrow a Eurodollar Loan from such
Lender on the date for such borrowing specified in the relevant notice
of borrowing given pursuant to Section 2.02 hereof.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
that otherwise would have accrued on the principal amount so paid, prepaid,
Converted or not borrowed (other than the portion thereof consisting of the
Applicable Margin) for the period from the date of such payment, prepayment,
Conversion or failure to borrow to the last day of the then current Interest
Period for such Loan (or, in the case of a failure to borrow, the Interest
Period for such Loan that would have commenced on the date specified for such
borrowing) at the applicable rate of interest for such Loan provided for herein
over (ii) the amount of interest that otherwise would have accrued on such
principal amount at a rate per annum equal to the interest component of the
amount such Lender would have bid in the London interbank market for Dollar
deposits of leading banks in amounts comparable to such principal amount and
with maturities comparable to such period (as reasonably determined by such
Lender).
5.06 SUBSTITUTION OF LENDERS. In the event that the Company
becomes obligated to pay additional amounts to any Lender pursuant to Section
5.01 hereof, then (unless such Lender has theretofore taken steps to remove or
cure, and has removed or cured, the conditions creating the cause for such
obligation to
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pay such additional amounts, then the Company may, so long as no Default shall
be continuing, within 60 days after the demand by such Lender for such
additional amounts, designate another bank which is acceptable to the Agent and
the Majority Lenders (such other bank being herein called a "REPLACEMENT
LENDER") to purchase all of the Loans of such Lender and all of such Lender's
rights and obligations hereunder (without recourse to or warranty by, or expense
to, such Lender) for a purchase price equal to the outstanding principal amount
of such Lender's Loans plus any accrued but unpaid interest thereon and any
accrued but unpaid fees in respect of such Lender's Commitments and any other
amounts then payable to such Lender hereunder, and to assume all of the
obligations of such Lender hereunder (except for such rights as survive the
repayment of the Loans) and, upon such purchase such Lender shall no longer be a
party hereto or have any rights hereunder (except for those that survive
repayment of the Loans) and shall be released from all of its obligations
hereunder, and the Replacement Lender shall succeed to the rights and
obligations of such Lender hereunder.
5.07 ADDITIONAL COSTS IN RESPECT OF LETTERS OF CREDIT. Without
limiting the obligations of the Company under Section 5.01 hereof (but without
duplication), if as a result of any Regulatory Change or any risk-based capital
guideline or other requirement heretofore or hereafter issued by any government
or governmental or supervisory authority implementing at the national level the
Basle Accord there shall be imposed, modified or deemed applicable any tax,
reserve, special deposit, capital adequacy or similar requirement against or
with respect to or measured by reference to Letters of Credit issued or to be
issued hereunder and the result shall be to increase the cost to any Lender or
Lenders of issuing (or purchasing participations in) or maintaining its
obligation hereunder to issue (or purchase participations in) any Letter of
Credit hereunder or reduce any amount receivable by any Lender hereunder in
respect of any Letter of Credit (which increases in cost, or reductions in
amount receivable, shall be the result of such Lender's or Lenders' reasonable
allocation of the aggregate of such increases or reductions resulting from such
event), then, upon demand by such Lender or Lenders (through the Agent), the
Company shall pay immediately to the Agent for account of such Lender or
Lenders, from time to time as specified by such Lender or Lenders (through the
Agent), such additional amounts as shall be sufficient to compensate such Lender
or Lender (through the Agent) for such increased costs or reductions in amount.
A statement as to such increased costs or reductions in amount incurred by any
such Lender or Lender, submitted by such Lender or Lenders to the
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Company shall be conclusive in the absence of manifest error as to the amount
thereof.
Section 6. GUARANTEE.
6.01 THE GUARANTEE. The Subsidiary Guarantors hereby jointly and
severally guarantee to each Lender and the Agent and their respective successors
and assigns the prompt payment in full when due (whether at stated maturity, by
acceleration or otherwise) of the principal of and interest on the Loans made by
the Lenders to, and the Notes held by each Lender of, the Company and all other
amounts from time to time owing to the Lenders or the Agent by the Company under
this Agreement and under the Notes and by any Obligor under any of the other
Basic Documents, in each case strictly in accordance with the terms thereof
(such obligations being herein collectively called the "GUARANTEED
OBLIGATIONS"). The Subsidiary Guarantors hereby further jointly and severally
agree that if the Company shall fail to pay in full when due (whether at stated
maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the
Subsidiary Guarantors will promptly pay the same, without any demand or notice
whatsoever, and that in the case of any extension of time of payment or renewal
of any of the Guaranteed Obligations, the same will be promptly paid in full
when due (whether at extended maturity, by acceleration or otherwise) in
accordance with the terms of such extension or renewal.
6.02 OBLIGATIONS UNCONDITIONAL. The obligations of the Subsidiary
Guarantors under Section 6.01 hereof are absolute and unconditional, joint and
several, irrespective of the value, genuineness, validity, regularity or
enforceability of the obligations of the Company under this Agreement, the Notes
or any other agreement or instrument referred to herein or therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 6.02 that the obligations of the
Subsidiary Guarantors hereunder shall be absolute and unconditional, joint and
several, under any and all circumstances. Without limiting the generality of the
foregoing, it is agreed that the occurrence of any one or more of the following
shall not alter or impair the liability of the Subsidiary Guarantors hereunder
which shall remain absolute and unconditional as described above:
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(i) at any time or from time to time, without notice to the
Subsidiary Guarantors, the time for any performance of or compliance
with any of the Guaranteed Obligations shall be extended, or such
performance or compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of this
Agreement or the Notes or any other agreement or instrument referred to
herein or therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under this
Agreement or the Notes or any other agreement or instrument referred to
herein or therein shall be waived or any other guarantee of any of the
Guaranteed Obligations or any security therefor shall be released or
exchanged in whole or in part or otherwise dealt with; or
(iv) any lien or security interest granted to, or in favor of, the
Agent or any Lender or Lenders as security for any of the Guaranteed
Obligations shall fail to be perfected.
The Subsidiary Guarantors hereby expressly waive diligence, presentment, demand
of payment, protest and all notices whatsoever, and any requirement that the
Agent or any Lender exhaust any right, power or remedy or proceed against the
Company under this Agreement or the Notes or any other agreement or instrument
referred to herein or therein, or against any other Person under any other
guarantee of, or security for, any of the Guaranteed Obligations.
6.03 REINSTATEMENT. The obligations of the Subsidiary Guarantors
under this Section 6 shall be automatically reinstated if and to the extent that
for any reason any payment by or on behalf of the Company in respect of the
Guaranteed Obligations is rescinded or must be otherwise restored by any holder
of any of the Guaranteed Obligations, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise and the Subsidiary Guarantors jointly
and severally agree that they will indemnify the Agent and each Lender on demand
for all reasonable costs and expenses (including, without limitation, fees of
counsel) incurred by the Agent or such Lender in connection with such rescission
or restoration, including any such costs and expenses incurred in defending
against any claim alleging that
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such payment constituted a preference, fraudulent transfer or similar payment
under any bankruptcy, insolvency or similar law.
6.04 SUBROGATION. The Subsidiary Guarantors hereby jointly and
severally agree that until the payment and satisfaction in full of all
Guaranteed Obligations and the expiration and termination of the Commitments of
the Lenders under this Agreement they shall not exercise any right or remedy
arising by reason of any performance by them of their guarantee in Section 6.01
hereof, whether by subrogation or otherwise, against the Company or any other
guarantor of any of the Guaranteed Obligations or any security for any of the
Guaranteed Obligations.
6.05 REMEDIES. The Subsidiary Guarantors jointly and severally
agree that, as between the Subsidiary Guarantors and the Lenders, the
obligations of the Company under this Agreement and the Notes may be declared to
be forthwith due and payable as provided in Section 10 hereof (and shall be
deemed to have become automatically due and payable in the circumstances
provided in said Section 10) for purposes of Section 6.01 hereof notwithstanding
any stay, injunction or other prohibition preventing such declaration (or such
obligations from becoming automatically due and payable) as against the Company
and that, in the event of such declaration (or such obligations being deemed to
have become automatically due and payable), such obligations (whether or not due
and payable by the Company) shall forthwith become due and payable by the
Subsidiary Guarantors for purposes of said Section 6.01.
6.06 INSTRUMENT FOR THE PAYMENT OF MONEY. Each Guarantor hereby
acknowledges that the guarantee in this Section 6 constitutes an instrument for
the payment of money, and consents and agrees that any Lender or the Agent, at
its sole option, in the event of a dispute by such Guarantor in the payment of
any moneys due hereunder, shall have the right to bring motion-action under New
York CPLR Section 3213.
6.07 CONTINUING GUARANTEE. The guarantee in this
Section 6 is a continuing guarantee, and shall apply to all
Guaranteed Obligations whenever arising.
6.08 RIGHTS OF CONTRIBUTION. The Subsidiary Guarantors hereby
agree, as between themselves, that if any Subsidiary Guarantor shall become an
Excess Funding Guarantor (as defined below) by reason of the payment by such
Subsidiary Guarantor of any Guaranteed Obligations, each other Subsidiary
Guarantor shall, on demand of such Excess Funding Guarantor (but
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subject to the next sentence), pay to such Excess Funding Guarantor an amount
equal to such Subsidiary Guarantor's Pro Rata Share (as defined below and
determined, for this purpose, without reference to the Properties, debts and
liabilities of such Excess Funding Guarantor) of the Excess Payment (as defined
below) in respect of such Guaranteed Obligations. The payment obligation of a
Subsidiary Guarantor to any Excess Funding Guarantor under this Section 6.08
shall be subordinate and subject in right of payment to the prior payment in
full of the obligations of such Subsidiary Guarantor under the other provisions
of this Section 6 and such Excess Funding Guarantor shall not exercise any right
or remedy with respect to such excess until payment and satisfaction in full of
all of such obligations.
For purposes of this Section 6.08, (i) "EXCESS FUNDING GUARANTOR"
shall mean, in respect of any Guaranteed Obligations, a Subsidiary Guarantor
that has paid an amount in excess of its Pro Rata Share of such Guaranteed
Obligations, (ii) "EXCESS PAYMENT" shall mean, in respect of any Guaranteed
Obligations, the amount paid by an Excess Funding Guarantor in excess of its Pro
Rata Share of such Guaranteed Obligations and (iii) "PRO RATA SHARE" shall mean,
for any Subsidiary Guarantor, the ratio (expressed as a percentage) of (x) the
amount by which the aggregate present fair saleable value of all Properties of
such Subsidiary Guarantor (excluding any shares of stock of any other Subsidiary
Guarantor) exceeds the amount of all the debts and liabilities of such
Subsidiary Guarantor (including contingent, subordinated, unmatured and
unliquidated liabilities, but excluding the obligations of such Subsidiary
Guarantor hereunder and any obligations of any other Subsidiary Guarantor that
have been Guaranteed by such Subsidiary Guarantor) to (y) the amount by which
the aggregate fair saleable value of all Properties of the Company and all of
the Subsidiary Guarantors exceeds the amount of all the debts and liabilities
(including contingent, subordinated, unmatured and unliquidated liabilities, but
excluding the obligations of the Company and the Subsidiary Guarantors
hereunder) of the Company and all of the Subsidiary Guarantors, all as of the
Closing Date. If any Subsidiary becomes a Subsidiary Guarantor hereunder
subsequent to the Closing Date, then for purposes of this Section 6.08 such
subsequent Subsidiary Guarantor shall be deemed to have been a Subsidiary
Guarantor as of the Closing Date and the aggregate present fair saleable value
of the Properties, and the amount of the debts and liabilities, of such
Subsidiary Guarantor as of the Closing Date shall be deemed to be equal to such
value and amount on the date such Subsidiary Guarantor becomes a Subsidiary
Guarantor hereunder.
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6.09 GENERAL LIMITATION ON GUARANTEE OBLIGATIONS. In any action
or proceeding involving any state corporate law, or any state or Federal
bankruptcy, insolvency, reorganization or other law affecting the rights of
creditors generally, if the obligations of any Subsidiary Guarantor under
Section 6.01 hereof would otherwise, taking into account the provisions of
Section 6.08 hereof, be held or determined to be void, invalid or unenforceable,
or subordinated to the claims of any other creditors, on account of the amount
of its liability under said Section 6.01, then, notwithstanding any other
provision hereof to the contrary, the amount of such liability shall, without
any further action by such Subsidiary Guarantor, any Lender, the Agent or any
other Person, be automatically limited and reduced to the highest amount that is
valid and enforceable and not subordinated to the claims of other creditors as
determined in such action or proceeding.
Section 7. CONDITIONS PRECEDENT.
7.01 EFFECTIVENESS OF AMENDMENT AND RESTATEMENT. The
effectiveness of the amendment and restatement of the Original Credit Agreement
provided for by this Agreement is subject to the conditions precedent that the
Agent shall have received, on or prior to July 12, 1996, the following, each of
which shall be satisfactory to the Agent in form and substance:
(a) CORPORATE DOCUMENTS. Certified copies of the charter and
by-laws (or equivalent documents) of each Obligor and of all corporate
authority for each Obligor (including, without limitation, board of
director resolutions and evidence of the incumbency of officers) with
respect to the execution, delivery and performance of such of the Basic
Documents to which such Obligor is intended to be a party and each other
document to be delivered by such Obligor from time to time in connection
herewith and the extensions of credit hereunder (and the Agent and each
Lender may conclusively rely on such certificate until it receives
notice in writing from such Obligor to the contrary).
(b) MIDTEX AGREEMENTS. Copies of (a) the MidTex Asset
Purchase Agreement, (b) the Big Springs IGA Contract and (c)
the Operating Agreement.
(c) USE PERMITS. A certificate of a senior officer of
the Company stating that any Use Permits required to be
obtained in connection with any Correctional and Detention
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Facility Contract, or the operations contemplated thereby, are in full
force and effect.
(d) NOTES. The Notes, duly completed and executed.
(e) SECURITY AGREEMENT. The Security Agreement Amendment, duly
executed and delivered by the Obligors and the Agent and the
certificates identified under the name of such Obligor in Annex 1
thereto, in each case (unless such certificates represent bearer shares)
accompanied by undated stock powers executed in blank. In addition, each
Obligor shall have taken such other action (including, without
limitation, delivering to the Agent, for filing, appropriately completed
and duly executed copies of Uniform Commercial Code financing
statements) as the Agent shall have reasonably requested in order to
perfect the security interests created pursuant to the Security
Agreement as amended by the Security Agreement Amendment.
(f) FINANCIAL PROJECTIONS. Projections satisfactory to the Agent
from the chief financial officer of the Company (in form satisfactory to
Agent) for the fiscal year ending on December 31, 1996 through (and
including) the fiscal year ending on December 31, 2000, after giving
effect to the borrowings hereunder on the Closing Date, the MidTex
Acquisition and the other transactions contemplated hereby.
(g) INSURANCE. Certificates of insurance evidencing the existence
of all insurance required to be maintained by the Company pursuant to
Section 9.04 hereof and the designation of the Agent as the loss payee
or additional named insured, as the case may be, thereunder to the
extent required by said Section 9.04, such certificates to be in such
form and contain such information as is specified in said Section 9.04.
In addition, the Company shall have delivered (i) a certificate of the
chief financial officer of the Company setting forth the insurance
obtained by it in accordance with the requirements of Section 9.04 and
stating that such insurance is in full force and effect and that all
premiums then due and payable thereon have been paid and (ii) a written
report, dated reasonably near the date the Loans are being made, of an
independent insurance broker acceptable to the Agent, as to such
insurance and stating that, in their opinion, such insurance adequately
protects the interests of the Agent and the Lenders, is in compliance
with the provisions of said Section 9.04, and is comparable in all
respects with insurance carried by responsible owners
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and operators of Properties similar to those of the
Obligors.
(h) ENVIRONMENTAL SURVEY. An environmental survey and assessment
prepared by a firm of licensed engineers (acceptable to the Agent and
the Company and familiar with the identification of toxic and hazardous
substances) in form and substance reasonably satisfactory to the Agent,
such environmental survey and assessment to be based upon physical
on-site inspections by such firm of each of the existing sites and
facilities owned, operated or leased by MidTex, as well as an historical
review of the uses of such sites and facilities and of the business and
operations of MidTex (including any former Subsidiaries or divisions of
MidTex that have been disposed of prior to the date of such survey and
assessment and with respect to which MidTex may have retained liability
for Environmental Claims). The Agent shall provide the Company, at its
request, an opportunity to review and comment on the draft version of
such survey and environmental assessment.
(i) EQUITY ISSUANCE AND EQUITY RIGHTS. Each of the
following:
(i) The Company shall have received $6,000,000 in proceeds
from short-term bridge financing provided by ING (the
"CONVERTIBLE SUBORDINATED NOTE"), on terms and conditions
satisfactory to the Agent; and
(ii) Copies of all documents or instruments providing for
any Equity Rights with respect to the Company or any of its
Subsidiaries (each of which shall be in form and substance
satisfactory to the Agent).
(j) DEBT INSTRUMENTS. Copies of all documents or
instruments evidencing any of the Indebtedness described on
Schedule I hereto (each of which shall be in form and
substance satisfactory to the Agent).
(k) MIDTEX ASSET PURCHASE AGREEMENT. Evidence that all of the
conditions to the MidTex Asset Purchase Agreement (any such conditions
requiring the satisfaction of any person or entity other than the Agent
or the Lenders to be deemed for this purpose to require the satisfaction
of the Agent) have been met or waived with the concurrence of the
Lenders.
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(l) LICENSES, PERMITS AND GOVERNMENTAL APPROVALS. Evidence that
all necessary licenses, permits and governmental and third-party
consents and approvals in connection with the MidTex Acquisition
(including, without limitation, appropriate written approvals from the
Federal Bureau of Prisons and the City of Big Springs) have been
obtained and remain in full force and effect.
(m) REPAYMENT OF EXISTING INDEBTEDNESS. Evidence that the
principal of and interest on, and all other amounts owing in respect of,
the loans and other extensions of credit under the Original Credit
Agreement shall have been, or shall concurrently be, paid in full.
(n) UCC, TAX LIEN, JUDGMENT AND LITIGATION SEARCHES. Reports
satisfactory to the Agent listing the result of Uniform Commercial Code
filing, tax lien, judgment and litigation searches prepared by one or
more firms satisfactory to the Agent with respect to each Obligor in
each of the jurisdictions deemed relevant by the Agent.
(o) OFFICER'S CERTIFICATE. A certificate of a senior
officer of the Company, dated the Closing Date, to the
effect set forth in the first sentence of Section 7.03
hereof.
(p) OPINION OF NEW YORK AND CALIFORNIA COUNSEL TO THE OBLIGORS.
An opinion, dated the Closing Date, of Proskauer Rose Goetz & Mendelsohn
LLP, counsel to the Obligors, substantially in the form of Exhibit D-1
hereto (and each Obligor hereby instructs such counsel to deliver such
opinion to the Lenders and the Agent).
(q) OPINION OF TEXAS COUNSEL TO THE OBLIGORS. An opinion, dated
the Closing Date, of Baker & Botts, L.L.P., counsel to the Obligors,
substantially in the form of Exhibit D-2 hereto (and each Obligor hereby
instructs such counsel to deliver such opinion to the Lenders and the
Agent).
(r) ADVERSE LITIGATION OR PROCEEDING. Certificates of each
Obligor, signed on behalf of each Obligor by a senior officer thereof,
to the effect that (and the Agent shall be satisfied in its good faith
judgment that) no litigation or proceeding shall exist (or, to such
officer's knowledge be threatened) (i) with respect to the MidTex
Acquisition or (ii) that could have a Material Adverse Effect.
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(s) MANAGEMENT AGREEMENTS, ETC.. To the extent not delivered
pursuant to the Original Credit Agreement, copies of all agreements and
arrangements among the shareholders of the Company or between any
shareholder and the Company, and all employment and non-compete
agreements (or similar agreements) between the Company and certain key
personnel.
(t) MIDTEX AND OTHER REAL PROPERTY. Evidence that with respect to
any interest in real property acquired pursuant to the MidTex Asset
Purchase Agreement, and any other real property held by any Obligor on
the Closing Date, the Obligors shall have complied with the provisions
of Section 9.27 hereto.
(u) EQUITY ISSUANCE AND PROCEEDS. The Company shall have received
at least $200,000 in net cash proceeds from the issuance of its Class B
Common Stock to Dillon Read.
(v) OTHER DOCUMENTS. Such other documents as the
Agent or any Lender or special New York counsel to ING may
reasonably request.
The effectiveness of this Agreement is also subject to the payment or delivery
by the Company of such fees and other consideration as the Company shall have
agreed to pay or deliver to any Lender or an affiliate thereof or the Agent in
connection herewith, including, without limitation, the reasonable fees and
expenses of Mayer, Brown & Platt, special New York counsel to ING in connection
with the negotiation, preparation, execution and delivery of this Agreement and
the Notes and the other Basic Documents and the extensions of credit hereunder
(to the extent that statements for such fees and expenses have been delivered to
the Company).
7.02 CAPEX LOANS. The obligation of any Lender to make any CapEx
Loan (including, if applicable, upon the initial borrowing hereunder) which
would result in the Lenders having made an aggregate principal amount of CapEx
Loans in excess of $250,000 (excluding the aggregate principal amount of any
CapEx Loans borrowed upon the date of the initial borrowing hereunder) is
subject to the further conditions precedent that the Agent shall have received
the following, each of which shall be satisfactory to the Agent (and to the
extent specified below, to the Majority Lenders) in form and substance:
(a) CFO CERTIFICATE. A certificate of the chief
financial officer of the Company (in such detail as the
Agent may request) as to the good faith estimated amount of
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Capital Expenditures that will be incurred in respect of a
newly-executed Correctional and Detention Facility Contract, an
amendment to an existing Correctional and Detention Facility Contract or
an expansion under an existing Correctional and Detention Facility
Contract, as applicable, to which such borrowing relates (the "RELEVANT
TRANSACTION" for such borrowing), over the term of such CapEx Loans (the
"REQUIRED CAPEX AMOUNT" for such CapEx Loans).
(b) RELEVANT CORRECTIONAL AND/OR DETENTION FACILITY CONTRACTS.
True and complete copies of the fully executed Correctional and
Detention Facility Contract or Contracts (including all amendments
thereto) to which the Relevant Transaction relates (the "RELEVANT
CONTRACT" for such Relevant Transaction), together with a certificate of
a senior officer of the Company to the effect that (x) all conditions to
the effectiveness of the Relevant Contract for such borrowing shall have
been met or waived; PROVIDED THAT any condition in such Relevant
Contract that, if not met, could reasonably be expected to have a
Material Adverse Effect shall not be waived by any Person without the
consent of the Agent and the Majority Lenders and (y) such Relevant
Contract does not contain any provision permitting the other party to
such Relevant Contract to terminate, cancel or otherwise modify such
Relevant Contract upon the occurrence of any change in control (or
similar event) with respect to any Obligor. Further, any condition in
such Relevant Contract requiring the satisfaction of any Person shall be
deemed for purposes of this Section 7.02(b) to require the satisfaction
of the Agent and the Majority Lenders if the failure to meet such
condition could reasonably be expected to have a Material Adverse
Effect.
(c) USE PERMITS. A certificate of a senior officer of the Company
to the effect that (x) attached thereto are true and complete copies of
each Use Permit required in connection with the Relevant Transaction for
such borrowing and that each such Use Permit is in full force and
effect, or (y) no Use Permits are so required.
(d) CORPORATE AUTHORIZATIONS. Evidence to the reasonable
satisfaction of the Agent that the Relevant Transaction for such
borrowing shall have been duly approved by the board of directors of
each relevant Obligor and that the Relevant Contract therefor shall have
been duly executed and delivered by the parties thereto and shall be in
full force and effect. In addition, the Agent shall have received copies
of all written information provided to the
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board of directors of any Obligor in connection with such Relevant
Transaction at the same time such information was provided to such board
of directors.
(e) AMOUNT OF THE CAPEX LOANS. Evidence to the satisfaction of
the Majority Lenders that the aggregate amount of the CapEx Loans
included in such borrowing does not exceed the lesser of:
(i) the sum of the following:
(x) the projected Net Cash Flow with respect to the
Relevant Transaction for such CapEx Loans for the Contract
Term therefor, PLUS
(y) to the extent not included in the amount
determined pursuant to the foregoing clause (x), the
aggregate amount of reimbursement payments as to which the
applicable Counterparty is expressly obligated in writing
to the Obligors (whether by direct payment obligations or
a guarantee of payment obligations) for expansion expenses
related to such Relevant Transaction (whether or not
payable during the Contract Term for such Relevant
Transaction); and
(ii) the Required CapEx Amount for such CapEx
Loan.
Such evidence shall include (without limitation) a certificate of a
senior financial officer of the Company (in such detail as the Agent may
request) as to the respective amounts referred to in the foregoing
clauses (i)(x) and (i)(y).
For purposes of this Section 7.02:
"CONTRACT TERM" shall mean, for any Relevant Transaction, (a) if
the Counterparty with respect to the Relevant Contract is the Federal
Bureau of Prisons, the initial stated term of the Relevant Contract (or
relevant portion of such Relevant Contract), together with each term for
which such Relevant Contract (or such portion) may be renewed at the
option of the respective parties thereto (to the extent that the
duration of all such optional renewal terms does not exceed five years);
and (b) if the Counterparty with respect to the Relevant Contract is any
party other than the Federal Bureau of Prisons, the stated
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term of the Relevant Contract (or relevant portion of such Relevant
Contract), without giving effect to any optional renewals thereof.
"COUNTERPARTY" shall mean, with respect to any Relevant Contract,
the party or parties to such Relevant Contract other than an Obligor.
"NET CASH FLOW" shall mean, with respect to any Relevant
Transaction for any period, the sum of the following:
(x) the projected occupancy-related revenues to be
generated by such Relevant Transaction during such
period, PLUS
(y) the aggregate amount of reimbursement payments to be
made by the applicable Counterparty for lease expenses and
liability insurance (but excluding any portion thereof
representing interest income), MINUS
(z) all direct occupancy-related cash costs to be incurred
by the Obligors in respect of such Relevant Transaction (other
than depreciation, amortization, interest expense and overhead
and management allocations),
in each case, as reasonably estimated by the Company in good
faith.
(f) FINANCIAL STATEMENTS. PRO FORMA financial statements giving
effect to such borrowing and the transactions contemplated to occur
concurrently therewith, substantially in the form of Exhibit C-1 hereto,
demonstrating to the satisfaction of the Majority Lenders that the
Company will be able to repay such borrowing during the then remaining
term of the Relevant Contract for the Relevant Transaction in accordance
with the terms of this Agreement and will be able to comply with its
other obligations under this Agreement, including (without limitation)
Section 9 hereof, together with any information used in developing such
PRO FORMA financial statements, or any other information related
thereto, as the Agent may reasonably request.
(g) COMPLIANCE CERTIFICATE. A certificate from the
chief financial officer of the Company, dated the date of
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such borrowing, to the effect set forth in the first
sentence of Section 7.03 hereof.
(h) PER CONTRACT CASH FLOW RATIO. Evidence to the satisfaction of
the Majority Lenders that the Per Contract Cash Flow Ratio for the
Relevant Contract for such CapEx Loans, after giving effect to such
borrowing and the transactions contemplated thereby, shall not exceed
1.5 to 1. For purposes of this Section 7.02(h), "PER CONTRACT CASH FLOW
RATIO" shall mean, with respect to any CapEx Loans proposed to be made
hereunder in connection with any Relevant Contract, the ratio of (a) the
sum of the aggregate amount of such CapEx Loans PLUS the aggregate
amount of all Revolving Credit Loans that the Company projects it will
be required to borrow to finance Capital Expenditures to be made in
connection with such Relevant Contract, to (b) Net Cash Flow, to the
extent related solely to such Relevant Contract, for the stated term of
such Relevant Contract (without giving effect to any renewals thereof).
(i) GOVERNMENTAL CONSENT AND APPROVALS. A certificate of a senior
officer of the Company to the effect that (i) any municipal, state or
federal government (or agency, instrumentality or political subdivision
thereof) that is a party to the Relevant Contract for such borrowing,
and any such governmental entity granting a Use Permit in connection
with such Relevant Contract, does not object to the financing of the
Capital Expenditures related to such Relevant Contract with such
borrowing on the terms and conditions set forth in this Agreement and
the other Basic Documents, including (without limitation) the granting
of security interests and pledges of stock by the Obligors under the
Security Agreement and the guarantees provided the Subsidiary Guarantors
in Section 6 hereof and (ii) all necessary licenses, permits and
governmental and third-party consents and approvals relating to the
Relevant Transaction have been obtained and remain in full force and
effect.
(j) ANALYSES. To the extent completed by or on behalf of any
Obligor, any demographic, industry, competitive or other analysis
performed by any industry consultant, and the Agent and the Lenders
shall be named as beneficiaries of such report.
(k) INSURANCE. Evidence to the satisfaction of the
Agent that, after giving effect to the transactions
contemplated by such borrowing, the insurance program of the
Obligors, insofar as it relates to the Relevant Transaction
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for such CapEx Loans, adequately protects the interests of the Agent and
the Lenders and is comparable in all material respects with insurance
carried by responsible owners and operators of Properties similar to
those of the Obligors, including (without limitation) that the Agent
shall have been named as loss payee and additional insured under any
additional insurance policies (or with respect to any additional
insurance acquired under existing insurance policies) acquired in
connection with the Relevant Transaction.
(l) ENVIRONMENTAL SURVEY AND QUESTIONNAIRE. If requested by the
Agent, an environmental audit and/or review of any real property to be
acquired or leased by any Obligor in connection with the Relevant
Transaction, with the results and methodology thereof reasonably
satisfactory to the Agent and performed by an engineer acceptable the
Agent and the Company. In addition, if requested by the Majority Lenders
(through the Agent), the Company shall have completed (and delivered to
each Lender) an environmental risk questionnaire in a form provided to
the Company by the Agent (and containing such inquiries with respect to
environmental matters as shall have been requested by any Lender,
through the Agent, to be included in such questionnaire), and the
responses to such questionnaire (and the underlying facts and
circumstances shown thereby) shall be in form and substance reasonably
satisfactory to each Lender.
(m) OTHER DOCUMENTS. Such other documents as the Agent or any
Lender or special New York counsel to ING may reasonably request, and
such other information regarding the financial condition, operations,
business or prospects of the Obligors insofar as its relates to such
CapEx Loans and the Relevant Transaction related thereto.
7.03 INITIAL AND SUBSEQUENT EXTENSIONS OF CREDIT. The obligation
of any Lender to make any Loan or otherwise extend credit to the Company upon
the occasion of each borrowing or other extension of credit hereunder is subject
to the further conditions precedent that, both immediately prior to the making
of such Loan or other extension of credit and also after giving effect thereto
and to the intended use thereof: (a) no Default shall have occurred and be
continuing; and (b) the representations and warranties made by the Company in
Section 8 hereof, and by each Obligor in each of the other Basic Documents to
which it is a party, shall be true and complete on and as of the date of the
making of such Loan or other extension of credit
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with the same force and effect as if made on and as of such date (or, if any
such representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date).
Section 8. REPRESENTATIONS AND WARRANTIES. Each Obligor,
represents and warrants to the Agent and the Lenders that:
8.01 CORPORATE EXISTENCE. Each Obligor: (a) is a corporation,
partnership or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization; (b) has all
requisite corporate or other power, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and carry on
its business as now being or as proposed to be conducted; and (c) is qualified
to do business and is in good standing in all jurisdictions in which the nature
of the business conducted by it makes such qualification necessary and where
failure so to qualify could reasonably be expected to (either individually or in
the aggregate) have a Material Adverse Effect.
8.02 FINANCIAL CONDITION. The Obligors have heretofore furnished
to each of the Lenders the consolidated and consolidating balance sheets of the
Company and its Subsidiaries as at December 31, 1995 and the related
consolidated and consolidating statements of income, retained earnings and cash
flow of the Company and its Subsidiaries for the fiscal year ended on said date,
with the opinion thereon (in the case of said consolidated balance sheet and
statements) of Arthur Andersen L.L.P., and the unaudited consolidated and
consolidating balance sheets of the Company and its Subsidiaries as at March 31,
1996 and the related consolidated and consolidating statements of income and
retained earnings of the Company and its Subsidiaries for the three-month period
ended on such date. All such financial statements are complete and correct and
fairly present the consolidated financial condition of the Obligors, and (in the
case of said consolidating financial statements) the respective unconsolidated
financial condition of the Obligors, as at said dates and the consolidated and
unconsolidated results of their operations for the fiscal year ended on said
dates (subject, in the case of such financial statements as at March 31, 1996,
to normal year-end audit adjustments), all in accordance with generally accepted
accounting principles and practices applied on a consistent basis, except as
otherwise indicated in the notes thereto. None of the Obligors has on the date
hereof any material contingent liabilities, liabilities for taxes, unusual
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forward or long-term commitments or unrealized or anticipated losses from any
unfavorable commitments, in each case, of a type required to be reflected in a
balance sheet prepared in accordance with GAAP, except as referred to or
reflected or provided for in said balance sheets as at said dates. Since
December 31, 1995, there has been no material adverse change in the consolidated
financial condition, operations, business or prospects taken as a whole of the
Obligors from that set forth in said financial statements as at said date.
8.03 LITIGATION. There are no legal or arbitral proceedings, or
any proceedings by or before any governmental or regulatory authority or agency,
now pending or (to the knowledge of the Company) threatened against any Obligor
that, if adversely determined could be reasonably expected to (either
individually or in the aggregate) have a Material Adverse Effect.
8.04 NO BREACH. None of the execution and delivery of this
Agreement and the Notes and the other Basic Documents, the consummation of the
transactions herein and therein contemplated or compliance with the terms and
provisions hereof and thereof will conflict with or result in a breach of, or
require any consent under, the charter or by-laws of any Obligor, or any
applicable law or regulation, or any order, writ, injunction or decree of any
court or governmental authority or agency, or any agreement or instrument to
which any Obligor is a party or by which any of them or any of their Property is
bound or to which any of them is subject, or constitute a default under any such
agreement or instrument, or (except for the Liens created pursuant to the
Security Documents) result in the creation or imposition of any Lien upon any
Property of the Obligors pursuant to the terms of any such agreement or
instrument.
8.05 ACTION. Each Obligor has all necessary corporate power,
authority and legal right to execute, deliver and perform its obligations under
each of the Basic Documents to which it is a party; the execution, delivery and
performance by each Obligor of each of the Basic Documents to which it is a
party have been duly authorized by all necessary corporate action on its part
(including, without limitation, any required shareholder approvals); and this
Agreement has been duly and validly executed and delivered by each Obligor and
constitutes, and each of the Notes and the other Basic Documents to which it is
a party when executed and delivered by such Obligor (in the case of the Notes,
for value) will constitute, its legal, valid and binding obligation, enforceable
against each Obligor in accordance with its terms, except as such enforceability
may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or
similar
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laws of general applicability affecting the enforcement of creditors' rights and
(b) the application of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
8.06 APPROVALS. No authorizations, approvals or consents of, and
no filings or registrations with, any governmental or regulatory authority or
agency, or any securities exchange, are necessary for the execution, delivery or
performance by any Obligor of the Basic Documents to which it is a party or for
the legality, validity or enforceability hereof or thereof, except for filings
and recordings in respect of the Liens created pursuant to the Security
Documents.
8.07 USE OF CREDIT. None of the Obligors is engaged principally,
or as one of its important activities, in the business of extending credit for
the purpose, whether immediate, incidental or ultimate, of buying or carrying
Margin Stock, and no part of the proceeds of any extension of credit hereunder
will be used to buy or carry any Margin Stock.
8.08 ERISA. Each Plan, and, to the knowledge of each Obligor,
each Multiemployer Plan, is in compliance in all material respects with, and has
been administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other Federal or State law, and no event
or condition has occurred and is continuing as to which any Obligor would be
under an obligation to furnish a report to the Lenders under Section 9.01(h)
hereof.
8.09 TAXES. The Obligors are members of an affiliated group of
corporations filing consolidated returns for Federal income tax purposes, of
which the Company is the "common parent" (within the meaning of Section 1504 of
the Code) of such group. Each Obligor has filed (either directly, or indirectly
through the Company) all Federal income tax returns and all other material tax
returns that are required to be filed by them and have paid (either directly, or
indirectly through Company) all taxes due pursuant to such returns or pursuant
to any assessment received by any Obligor, except for any taxes being contested
by an Obligor in good faith by proper proceedings as to which no Liens have been
created on any Property of any Obligor. The charges, accruals and reserves on
the books of the Obligors in respect of taxes and other governmental charges
are, in the opinion of the Obligors, adequate. The Company has not given or been
requested to give a waiver of the statute of limitations relating to the payment
of Federal, state, local and foreign taxes or other impositions.
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8.10 INVESTMENT COMPANY ACT. None of the Obligors is an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
8.11 PUBLIC UTILITY HOLDING COMPANY ACT. None of the Obligors is
a "holding company", or an "affiliate" of a "holding company" or a "subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
8.12 MATERIAL AGREEMENTS AND LIENS.
(a) Part A of Schedule I hereto is a complete and correct list,
as of the date of this Agreement, of each credit agreement, loan agreement,
indenture, purchase agreement, guarantee, letter of credit or other arrangement
providing for or otherwise relating to any Indebtedness or any extension of
credit (or commitment for any extension of credit) to, or guarantee by, any
Obligor, and the aggregate principal or face amount outstanding or that may
become outstanding under each such arrangement is correctly described in Part A
of said Schedule I.
(b) Part B of Schedule I hereto is a complete and correct list,
as of the date of this Agreement, of each Lien securing Indebtedness of any
Person and covering any Obligor, and the aggregate Indebtedness secured (or that
may be secured) by each such Lien and the Property covered by each such Lien is
correctly described in Part B of said Schedule I.
8.13 ENVIRONMENTAL MATTERS. Each Obligor has obtained all
environmental, health and safety permits, licenses and other authorizations
required under all applicable Environmental Laws to carry on its business as now
being or as currently proposed to be conducted, except to the extent failure to
have any such permit, license or authorization would not (either individually or
in the aggregate) have a Material Adverse Effect. Each of such permits, licenses
and authorizations is in full force and effect and each of the Obligors is in
compliance with the terms and conditions thereof, and is also in compliance with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in any applicable
Environmental Law, except to the extent failure to comply therewith would not
(either individually or in the aggregate) have a Material Adverse Effect.
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In addition, except as set forth in Schedule II hereto:
(a) No notice, notification, demand, request for information,
citation, summons or order has been issued to any Obligor or about which
any Obligor has otherwise become aware, no complaint has been filed
against any Obligor or about which any Obligor has otherwise become
aware, no penalty has been assessed against any Obligor or about which
any Obligor has otherwise become aware and no investigation or review is
pending or, to the knowledge of any Obligor, threatened by any
governmental authority or other entity with respect to any alleged
failure by any Obligor to have any environmental, health or safety
permit, license or other authorization required under any Environmental
Law in connection with the conduct of the business of any Obligor or
with respect to any generation, treatment, storage, recycling,
transportation, discharge or disposal, or any Release of any Hazardous
Materials generated by any Obligor.
(b) None of the Obligors owns, operates or leases a treatment,
storage or disposal facility requiring a permit under the Resource
Conservation and Recovery Act of 1976, as amended, or under any
comparable state or local statute; and
(i) no polychlorinated biphenyls (PCBs) are or
have been present at any site or facility now or
previously owned, operated or leased by any Obligor;
(ii) no asbestos or asbestos-containing materials
is or has been present at any site or facility now or
previously owned, operated or leased by any Obligor;
(iii) there are no underground storage tanks or surface
impoundments for Hazardous Materials, active or abandoned, at any
site or facility now or previously owned, operated or leased by
any Obligor;
(iv) no Hazardous Materials have been Released at, on or
under any site or facility now or previously owned, operated or
leased by any Obligor in a reportable quantity established by any
applicable Environmental Law; and
(v) no Hazardous Materials have been otherwise Released at,
on or under any site or facility now or previously owned,
operated or leased by any Obligor that would (either individually
or in the aggregate) have a Material Adverse Effect.
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(c) None of the Obligors has transported or arranged for the
transportation of any Hazardous Material to any location that is listed
on the National Priorities List ("NPL") under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), listed for possible inclusion on the NPL by the
Environmental Protection Agency in the Comprehensive Environmental
Response and Liability Information System, as provided for by 40 C.F.R.
ss. 300.5 ("CERCLIS"), or on any similar state or local list or that is
the subject of Federal, state or local enforcement actions or other
investigations that may lead to Environmental Claims against the Company
or any of its Subsidiaries.
(d) No Hazardous Material generated by the Company or any of its
Subsidiaries has been recycled, treated, stored, disposed of or Released
by any Obligor at any location other than those listed in Schedule II
hereto.
(e) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of the Company or any of its
Subsidiaries and no site or facility now or previously owned, operated
or leased by any Obligor is listed or to the knowledge of any Obligor
(upon due investigation) proposed for listing on the NPL, CERCLIS or any
similar state list of sites requiring investigation or clean-up.
(f) No Liens have arisen under or pursuant to any Environmental
Laws on any site or facility owned, operated or leased by any Obligor,
and no government action has been taken or is in process that could
subject any such site or facility to such Liens and none of the Obligors
would be required to place any notice or restriction relating to the
presence of Hazardous Materials at any site or facility owned by it in
any deed to the real property on which such site or facility is located.
(g) All investigations, studies, audits, tests, reviews or other
analyses conducted by or that are in the possession of any Obligor
relating to environmental matters at or affecting any site or facility
now or previously owned, operated or leased by the any Obligor and that
reveal facts, circumstances or conditions that could reasonably be
expected to result in a Material Adverse Effect have been made available
to the Lenders.
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8.14 CAPITALIZATION. Schedule V hereto correctly sets forth the
number of shares of authorized capital stock of the Company, the class of such
shares, the number of each such class outstanding and the par value thereof. All
of such outstanding shares are duly and validly issued and outstanding, and each
of which shares is fully paid and nonassessable. Schedule V hereto correctly
sets forth, as of the date hereof, the names of the Persons owning any of such
shares of capital stock, the class or classes of such capital stock owned by
each such Person and percentage of the total number of shares of such class
owned by each such Person. As of the date hereof, (x) except for those set forth
in Schedule V hereto, there are no outstanding Equity Rights with respect to the
Company and (y) except for those set forth in Schedule V hereto, there are no
outstanding obligations of any Obligor to repurchase, redeem, or otherwise
acquire any shares of capital stock of any Obligor to make payments to any
Person, such as "phantom stock" payments, where the amount thereof is calculated
with reference to the fair market value or equity value of any Obligor.
8.15 SUBSIDIARIES, ETC.
(a) Set forth in Part A of Schedule III hereto is a complete and
correct list, as of the date hereof, of all of the Subsidiaries of the Company,
together with, for each such Subsidiary, (i) the jurisdiction of organization of
such Subsidiary, (ii) each Person holding ownership interests in such Subsidiary
and (iii) the nature of the ownership interests held by each such Person and the
percentage of ownership of such Subsidiary represented by such ownership
interests. Except as disclosed in Part A of Schedule III hereto, (x) each of the
Company and its Subsidiaries owns, free and clear of Liens (other than Liens
created pursuant to the Security Documents), and has the unencumbered right to
vote, all outstanding ownership interests in each Person shown to be held by it
in Part A of Schedule III hereto, (y) all of the issued and outstanding capital
stock of each such Person organized as a corporation is validly issued, fully
paid and nonassessable and (z) there are no outstanding Equity Rights with
respect to such Person.
(b) Set forth in Part B of Schedule III hereto is a complete and
correct list, as of the date of this Agreement, of all Investments (other than
Investments disclosed in Part A of said Schedule III hereto) held by the Company
or any of its Subsidiaries in any Person (other than Investments which are
Permitted Investments or deposits maintained with banks in the ordinary course
of business) and, for each such Investment, (x) the identity of the Person or
Persons holding such Investment and
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(y) the nature of such Investment. Except as disclosed in Part B of Schedule III
hereto, each of the Company and its Subsidiaries owns, free and clear of all
Liens (other than Liens created pursuant to the Security Documents), all such
Investments.
8.16 TITLE TO ASSETS. Each Obligor owns and has on the date
hereof, and will own and have on the Closing Date, good and marketable title or
valid and subsisting leaseholds (subject only to Liens permitted by Section 9.06
hereof) to the Properties shown to be owned in the most recent financial
statements referred to in Section 8.02 hereof (other than Properties disposed of
in the ordinary course of business or otherwise permitted to be disposed of
pursuant to Section 9.05 hereof). Each Obligor (a) owns and has on the date
hereof (and will own and have on the Closing Date), good and marketable title
to, or has on the date hereof (and will have on the Closing Date) a valid and
subsisting leasehold estate in, and (b) enjoys on the date hereof (and will
enjoy on the Closing Date), peaceful and undisturbed possession of, all
Properties (subject only to Liens permitted by Section 9.06 hereof) that are
necessary for the operation and conduct of its businesses.
8.17 TRUE AND COMPLETE DISCLOSURE. The information (other than
projections), reports, financial statements, exhibits and schedules furnished in
writing by or on behalf of the Obligors to the Agent or any Lender in connection
with the negotiation, preparation or delivery of this Agreement and the other
Basic Documents or included herein or therein or delivered pursuant hereto or
thereto, when taken as a whole do not contain any untrue statement of material
fact or omit to state any material fact necessary to make the statements herein
or therein, in light of the circumstances under which they were made, not
misleading. All projections furnished by or on behalf of the Obligors in writing
to the Agent or any Lender for purposes of or in connection with this Agreement
or the transactions contemplated hereby were prepared by the Company in good
faith based on assumptions determined to be reasonable by the Company under the
then existing facts and circumstances. All written information furnished after
the date hereof by any Obligor to the Agent and the Lenders in connection with
this Agreement and the other Basic Documents and the transactions contemplated
hereby and thereby will be true, complete and accurate in every material
respect, or (in the case of projections) based on reasonable assumptions, on the
date, and under the facts and circumstances, as of which such information is
stated or certified. There is no fact actually known to any Obligor that could
have a Material Adverse Effect that has not been disclosed herein, in the other
Basic Documents or in a report, financial statement, exhibit,
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schedule, disclosure letter or other writing furnished to the Lenders for use in
connection with the transactions contemplated hereby or thereby.
8.18 REAL PROPERTY. Set forth on Schedule IV hereto is a list, as
of the Closing Date, of all of the real property interests held by the Company
and its Subsidiaries, indicating in each case whether the respective Property is
owned or leased, the identity of the owner or lessor and the location of the
respective Property.
Section 9. COVENANTS OF THE COMPANY. The Company covenants and
agrees with the Lenders and the Agent that, so long as any Commitment, Loan or
Letter of Credit Liability is outstanding and until payment in full of all
amounts payable by the Company hereunder:
9.01 FINANCIAL STATEMENTS; ETC. The Company shall deliver to each
of the Lenders (in such form as shall be satisfactory to the Agent):
(a) no later than January 15 of each year, a budget (on a monthly
basis) for the Company and its Subsidiaries for such year, substantially
in the form of Exhibit C-2 hereto (including consolidating and
consolidated statements of income, cash flow and balance sheets prepared
in accordance with GAAP); and promptly after any material revision to
such budget, such budget as so revised;
(b) as soon as available and in any event within 30 days after
the end of each month, consolidated and consolidating statements of
income and retained earnings, and consolidated statements of cash flow,
of the Company and its Subsidiaries for such month and for the period
from the beginning of the respective fiscal year to the end of such
month, and the related consolidated balance sheets of the Company and
its Subsidiaries as at the end of such month, setting forth in each case
in comparative form the corresponding consolidated and consolidating
figures provided in the budget required under Section 9.01(a) hereof for
such period and the consolidated and consolidating figures for the
corresponding month in the preceding fiscal year, in each case
substantially in the form of Exhibit C-3 hereto, accompanied by a
certificate of a senior financial officer of the Company, which
certificate shall state that said consolidated financial statements
fairly present the consolidated financial condition and results of
operations of the Company and its Subsidiaries, and said consolidating
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financial statements fairly present the respective individual
unconsolidated financial condition and results of operations of the
Company and of each of its Subsidiaries, in each case in accordance with
generally accepted accounting principles, consistently applied, as at
the end of, and for, such month (subject to normal year-end audit
adjustments with the absence of footnotes);
(c) as soon as available and in any event within 45 days after
the end of each quarterly fiscal period of each fiscal year of the
Company, (i) a statement of occupancy rates at each of the facilities
owned or maintained by the Company and its Subsidiaries as at the end of
such period, and a statement of occupancy revenues and the direct costs
of occupancy for each Correctional and Detention Facility Contract for
such period and for the period from the beginning of the respective
fiscal year to the end of such fiscal quarter, in each case setting
forth in comparative form the corresponding figures for the
corresponding periods in the preceding fiscal year and in the budget
required under Section 9.01(a) hereof (ii) an analysis of the chief
financial officer of the financial condition of the Company and its
Subsidiaries, on a consolidated and consolidating basis, as of the end
of such period, including (without limitation) a reconciliation to the
budget required under Section 9.01(a) hereof;
(d) as soon as available and in any event within 90 days after
the end of each fiscal year of the Company, consolidated and
consolidating statements of income and retained earnings, and a
consolidated statement of cash flow, of the Company and its Subsidiaries
for such fiscal year and the related consolidated and consolidating
balance sheets of the Company and its Subsidiaries as at the end of such
fiscal year, setting forth in each case in comparative form the
corresponding consolidated and consolidating figures for the preceding
fiscal year, and accompanied (i) in the case of said consolidated
statements and balance sheet of the Company, by an opinion thereon of
independent certified public accountants of recognized national standing
(which opinion shall not contain any Impermissible Qualification), which
opinion shall state that said consolidated financial statements fairly
present the consolidated financial condition and results of operations
of the Company and its Subsidiaries as at the end of, and for, such
fiscal year in accordance with generally accepted accounting principles,
and by a management letter or similar letter submitted to the Company by
such accountants and
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(ii) in the case of said consolidating statements and balance sheets, by
a certificate of a senior financial officer of the Company, which
certificate shall state that said consolidating financial statements
fairly present the respective individual unconsolidated financial
condition and results of operations of the Company and of each of its
Subsidiaries, in each case in accordance with generally accepted
accounting principles, consistently applied, as at the end of, and for,
such fiscal year;
(e) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, that the
Company shall have filed with the Securities and Exchange Commission (or
any governmental agency substituted therefor) or any national securities
exchange;
(f) to the extent not previously furnished to the Lenders or the
Agent in such capacity, promptly upon the mailing thereof to the
shareholders of the Company generally or to holders of Seller
Subordinated Debt generally, copies of all financial statements, reports
and proxy statements so mailed;
(g) without duplication of any provision of subsection (d) above,
promptly after the receipt by the Company thereof, copies of each report
submitted to any Obligor by independent accountants in connection with
any annual, interim or special audit of the books of any Obligor made by
such accountants, or any management letters or similar documents
submitted to any Obligor by such accountants;
(h) as soon as possible, and in any event within ten days after
the Company knows or has reason to believe that any of the events or
conditions specified below with respect to any Plan or Multiemployer
Plan has occurred or exists, a statement signed by a senior financial
officer of the Company setting forth details respecting such event or
condition and the action, if any, that the Company or its ERISA
Affiliate proposes to take with respect thereto (and a copy of any
report or notice required to be filed with or given to PBGC by the
Company or an ERISA Affiliate with respect to such event or condition):
(i) any reportable event, as defined in Section 4043(b) of
ERISA and the regulations issued thereunder, with respect to a
Plan, as to which PBGC has not by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified
within 30
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days of the occurrence of such event (PROVIDED that a failure to
meet the minimum funding standard of Section 412 of the Code or
Section 302 of ERISA, including, without limitation, the failure
to make on or before its due date a required installment under
Section 412(m) of the Code or Section 302(e) of ERISA, shall be a
reportable event regardless of the issuance of any waivers in
accordance with Section 412(d) of the Code); and any request for
a waiver under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of a notice
of intent to terminate any Plan or any action taken by the
Company or an ERISA Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under Section
4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by the Company or
any ERISA Affiliate of a notice from a Multiemployer Plan that
such action has been taken by PBGC with respect to such
Multiemployer Plan;
(iv) the complete or partial withdrawal from a Multiemployer
Plan by the Company or any ERISA Affiliate that results in
liability under Section 4201 or 4204 of ERISA (including the
obligation to satisfy secondary liability as a result of a
purchaser default) or the receipt by the Company or any ERISA
Affiliate of notice from a Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of
ERISA or that it intends to terminate or has terminated under
Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against the Company or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not dismissed
within 30 days; and
(vi) the adoption of an amendment to any Plan that, pursuant
to Section 401(a)(29) of the Code or Section 307 of ERISA, would
result in the loss of tax-exempt status of the trust of which
such Plan is a part if the Company or an ERISA Affiliate fails to
timely provide security to the Plan in accordance with the
provisions of said Sections;
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(i) without prejudice as to whether an Event of Default has
occurred, promptly after the Company knows or has reason to believe that
any Default has occurred, a notice of such Default describing the same
in reasonable detail and, together with such notice or as soon
thereafter as possible, a description of the action that the Company has
taken or proposes to take with respect thereto;
(j) promptly after the termination or expiration of any
Correctional and Detention Facility Agreement, PRO FORMA financial
projections prepared by the Company demonstrating that after giving
effect to such termination or expiration (and any replacement
Correctional and Detention Facility Agreement therefor) the Company will
be in compliance with its obligations under Sections 9.10, 9.11, 9.12,
9.13, 9.14, 9.15, 9.16, 9.17 and 9.18 hereof for the period commencing
on the date of such termination and ending on the Revolving Credit
Commitment Termination Date; and
(k) from time to time such other information regarding the
financial condition, operations, business or prospects of the Company or
any of its Subsidiaries (including, without limitation, any Plan or
Multiemployer Plan and any reports or other information required to be
filed under ERISA) available to the Company, as any Lender or the Agent
may reasonably request.
The Company will furnish to each Lender, at the time it furnishes each set of
financial statements pursuant to paragraph (a), (b) or (c) above, a certificate
of a senior financial officer of the Company to the effect that no Default has
occurred and is continuing (or, if any Default has occurred and is continuing,
describing the same in reasonable detail and describing the action that the
Company has taken or proposes to take with respect thereto). In addition, at the
time the Company furnishes to each Lender the financial statements required
pursuant to paragraph (c) above, the Company shall furnish to each Lender a
certificate of a senior financial officer setting forth in reasonable detail the
computations necessary to determine whether the Company is in compliance with
Sections 9.10, 9.11, 9.12, 9.13, 9.14, 9.15, 9.16, 9.17 and 9.18 hereof as of
the date as of which such financial statements have been provided. Further, upon
the request of any Lender, at the time the Company furnishes the financial
statements required pursuant to paragraph (b) above, the Company shall furnish
to such Lender a certificate of a senior financial officer setting forth in
reasonable detail the computations necessary to determine whether the Company is
in compliance with Sections 9.10, 9.11, 9.12, 9.13, 9.14, 9.15,
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9.16, 9.17 and 9.18 hereof as of date as of which such financial statements have
been provided.
9.02 LITIGATION. The Company will promptly give to each Lender
notice of all legal or arbitral proceedings, and of all proceedings by or before
any governmental or regulatory authority or agency, and any material development
in respect of such legal or other proceedings, affecting the Company or any of
its Subsidiaries, except proceedings that, if adversely determined, would not
(either individually or in the aggregate) have a Material Adverse Effect.
9.03 EXISTENCE, ETC. The Company will, and will cause
each of its Subsidiaries to:
(a) preserve and maintain its legal existence and all
of its material rights, privileges, licenses and franchises;
(b) comply with the requirements of all applicable laws, rules,
regulations and orders of governmental or regulatory authorities if
failure to comply with such requirements could be reasonably expected to
(either individually or in the aggregate) have a Material Adverse
Effect;
(c) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any of
its Property prior to the date on which penalties attach thereto, except
for any such tax, assessment, charge or levy the payment of which is
being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained;
(d) maintain all of its Properties necessary to the
conduct of its business in good working order and condition,
ordinary wear and tear excepted;
(e) keep adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting
principles consistently applied; and
(f) upon notice to the Company, permit representatives of any
Lender or the Agent, during normal business hours, to examine, copy and
make extracts from its books and records, to inspect any of its
Properties, and to discuss its business and affairs with its officers,
all to the extent
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reasonably requested by such Lender or the Agent (as the
case may be).
9.04 INSURANCE. The Company will, and will cause each of its
Subsidiaries to, maintain insurance with financially sound and reputable
insurance companies, and with respect to Property and risks of a character
usually maintained by corporations of comparable size engaged in the same or
similar business and similarly situated, against loss, damage and liability of
the kinds and in the amounts customarily maintained by such corporations. The
Company will in any event maintain (with respect to itself and each of its
Subsidiaries):
(1) CASUALTY INSURANCE -- insurance against loss or damage
covering all of the tangible real and personal Property and improvements
of the Company and each of its Subsidiaries by reason of any Peril (as
defined below) in such amounts (subject to such deductibles as shall be
satisfactory to the Majority Lenders) as shall be reasonable and
customary and sufficient to avoid the insured named therein from
becoming a co-insurer of any loss under such policy but in any event in
an amount (i) in the case of fixed assets and equipment (including,
without limitation, vehicles), at least equal to 100% of the actual
replacement cost of such assets (including, without limitation,
foundation, footings and excavation costs), subject to deductibles as
aforesaid and (ii) in the case of inventory, not less than the fair
market value thereof, subject to deductibles as aforesaid, PROVIDED that
insurance in respect of Perils consisting of earthquakes or floods shall
not be required to be obtained except upon 30 days' prior notice from
the Agent.
(2) AUTOMOBILE LIABILITY INSURANCE FOR BODILY INJURY AND PROPERTY
DAMAGE -- insurance against liability for bodily injury and property
damage in respect of all vehicles (whether owned, hired or rented by the
Company or any of its Subsidiaries) at any time located at, or used in
connection with, its Properties or operations in such amounts as are
then customary for vehicles used in connection with similar Properties
and businesses, but in any event to the extent required by applicable
law.
(3) COMPREHENSIVE GENERAL LIABILITY INSURANCE -- insurance
against claims for bodily injury, death or Property damage occurring on,
in or about the Properties (and adjoining streets, sidewalks and
waterways) of the Company and its Subsidiaries, in such amounts as are
then
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customary for Property similar in use in the jurisdictions
where such Properties are located.
(4) WORKERS' COMPENSATION INSURANCE -- workers' compensation
insurance (including, without limitation, Employers' Liability
Insurance) to the extent required by applicable law.
(5) BUSINESS INTERRUPTION INSURANCE -- insurance against loss of
operating income (up to an aggregate amount equal to $3,000,000 and
subject to a deductible, or self-insured amount, not in excess of
$100,000) by reason of any Peril.
(6) KEY-MAN LIFE INSURANCE. -- insurance (issued by an
insurance company satisfactory to the Majority Lenders) in
an amount equal to at least $2,000,000 on the life of Mr.
David Cornell, within 45 days after the Closing Date.
(7) PROFESSIONAL LIABILITY INSURANCE -- professional liability
insurance in an amount equal to at least $5,000,000.
Such insurance shall be written by financially responsible companies selected by
the Company and (except for automobile insurance) having an A.M. Best rating of
"A" or better and being in a financial size category of VII or larger (or, with
respect to professional liability insurance only, an equivalent rating by a
European equivalent of A.M. Best), or by other companies acceptable to the
Majority Lenders, and (other than workers' compensation) shall, within 45 days
after the Closing Date, name the Agent as loss payee (to the extent covering
risk of loss or damage to tangible property) and as an additional named insured
as its interests may appear (to the extent covering any other risk). Each policy
referred to in this Section 9.04 shall provide that it will not be canceled or
reduced, or allowed to lapse without renewal, except after not less than 30
days' notice to the Agent and shall also provide that the interests of the Agent
and the Lenders shall not be invalidated by any act or negligence of the Company
or any Person having an interest in any Property covered by the Mortgage nor by
occupancy or use of any such Property for purposes more hazardous than permitted
by such policy nor by any foreclosure or other proceedings relating to such
Property. The Company will advise the Agent promptly of any significant policy
cancellation (other than any such cancellation in connection with the
replacement thereof), reduction or amendment.
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On or before the Closing Date, the Company will deliver to the
Agent certificates of insurance satisfactory to the Agent evidencing the
existence of all insurance required to be maintained by the Company hereunder
setting forth the respective coverages, limits of liability, carrier, policy
number and period of coverage and showing that such insurance will remain in
effect through the December 31 falling at least six months after the date
hereof, subject only to the payment of premiums as they become due (and
attaching original copies of any policies with respect to casualty insurance).
Thereafter, the Company will maintain all insurance required to be maintained by
the Company hereunder through the December 31 of each subsequent calendar year
as long as any Loans or Commitments are outstanding under this Agreement,
subject only to the payment of premiums as they become due. In addition, the
Company will not modify any of the provisions of any policy with respect to
professional liability insurance without delivering the original copy of the
endorsement reflecting such modification to the Agent accompanied by a written
report of Kaye Insurance Associates, or any other firm of independent insurance
brokers of nationally recognized standing, stating that, in their opinion, such
policy (as so modified) adequately protects the interests of the Lenders and the
Agent, is in compliance with the provisions of this Section 9.04, and is
comparable in all respects with insurance carried by responsible owners and
operators of businesses similar to those of the Company and its Subsidiaries.
The Company will not obtain or carry separate insurance concurrent in form or
contributing in the event of loss with that required by this Section 9.04 unless
the Agent is the named insured thereunder, with loss payable as provided herein.
The Company will immediately notify the Agent whenever any such separate
insurance is obtained and shall deliver to the Agent the certificates evidencing
the same.
Without limiting the obligations of the Company under the
foregoing provisions of this Section 9.04, in the event the Company shall fail
to maintain in full force and effect insurance as required by the foregoing
provisions of this Section 9.04, then the Agent may (upon notice to the
Company), but shall have no obligation so to do, procure insurance covering the
interests of the Lenders and the Agent in such amounts and against such risks as
the Agent (or the Majority Lenders) shall deem appropriate, and the Company
shall reimburse the Agent in respect of any premiums paid by the Agent in
respect thereof.
For purposes hereof, the term "PERIL" shall mean, collectively,
fire, lightning, flood, windstorm, hail, earthquake, explosion, riot and civil
commotion, vandalism and malicious mischief, damage from aircraft, vehicles and
smoke and
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all other perils covered by the "all-risk" endorsement then in use in the
jurisdictions where the Properties of the Company and its Subsidiaries are
located.
9.05 PROHIBITION OF FUNDAMENTAL CHANGES. The Company will not,
nor will it permit any of its Subsidiaries to, enter into any transaction of
merger or consolidation or amalgamation, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution). The Company will not, nor
will it permit any of its Subsidiaries to, acquire any business or Property
from, or capital stock of, or be a party to any acquisition of, any Person
except for (w) purchases of inventory and other Property to be sold or used in
the ordinary course of business, (x) Investments permitted under Section 9.08
hereof, (y) Capital Expenditures permitted under Section 9.14 hereof and (z)
other acquisitions so long as the aggregate consideration paid by the Obligors
for all such acquisitions does not exceed $250,000. The Company will not, nor
will it permit any of its Subsidiaries to, convey, sell, lease, transfer or
otherwise dispose of, in one transaction or a series of transactions, any part
of its business or Property, whether now owned or hereafter acquired (including,
without limitation, receivables and leasehold interests, but excluding (i)
obsolete or worn-out Property, tools or equipment no longer used or useful in
its business, (ii) any inventory or other Property sold or disposed of in the
ordinary course of business and on ordinary business terms and (iii) other
dispositions so long as the aggregate fair market value of all Property so
disposed of does not exceed $250,000).
9.06 LIMITATION ON LIENS. The Company will not, nor will it
permit any of its Subsidiaries to, create, incur, assume or suffer to exist any
Lien upon any of its Property, whether now owned or hereafter acquired, except
(without duplication):
(a) Liens created pursuant to the Security Documents;
(b) Liens in existence on the date hereof and listed in Part B of
Schedule I hereto (excluding, however, following the making of the
initial Loans hereunder, Liens securing Indebtedness to be repaid with
the proceeds of such Loans, as indicated on said Schedule I);
(c) Liens imposed by any governmental authority for taxes,
assessments or charges not yet due or that are being contested in good
faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the
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books of the Company or the affected Subsidiaries, as the
case may be, in accordance with GAAP;
(d) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business that are not overdue for a period of more than 30 days or that
are being contested in good faith and by appropriate proceedings and
Liens securing judgments but only to the extent for an amount and for a
period not resulting in an Event of Default under Section 10(h) hereof;
(e) pledges or deposits under worker's compensation,
unemployment insurance and other social security
legislation;
(f) deposits to secure the performance of bids, trade contracts
(other than for Indebtedness), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(g) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and
encumbrances consisting of zoning restrictions, easements, licenses,
restrictions on the use of Property or minor imperfections in title
thereto that, in the aggregate, are not material in amount, and that do
not in any case materially detract from the value of the Property
subject thereto or interfere with the ordinary conduct of the business
of the Company or any of its Subsidiaries; and
(h) Liens upon real and/or tangible personal Property acquired
after the date hereof (by purchase, construction or otherwise) by the
Company or any of its Subsidiaries, each of which Liens either (A)
existed on such Property before the time of its acquisition and was not
created in anticipation thereof or (B) was created solely for the
purpose of securing Indebtedness representing, or incurred to finance,
refinance or refund, the cost (including the cost of construction) of
such Property; PROVIDED that (i) no such Lien shall extend to or cover
any Property of the Company or such Subsidiary other than the Property
so acquired and improvements thereon and (ii) the principal amount of
Indebtedness secured by any such Lien shall at no time exceed 80% of the
fair market value (as determined in good faith by a senior financial
officer of the Company) of
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such Property at the time it was acquired (by purchase,
construction or otherwise).
9.07 INDEBTEDNESS. The Company will not, nor will it permit any
of its Subsidiaries to, create, incur or suffer to exist any Indebtedness except
(without duplication):
(a) Indebtedness to the Lenders hereunder;
(b) Indebtedness outstanding on the date hereof and listed in
Part A of Schedule I hereto (excluding, however, following the making of
the initial Loans hereunder, the Indebtedness to be repaid with the
proceeds of such Loans, as indicated on said Schedule I);
(c) the Seller Subordinated Debt;
(d) Indebtedness of Subsidiaries of the Company to the
Company or to other Subsidiaries of the Company;
(e) Indebtedness of the Company and its Subsidiaries secured by
Liens permitted under Section 9.06(h) hereof up to but not exceeding
$100,000 at any one time outstanding; and
(f) additional Indebtedness of the Company and its
Subsidiaries (including, without limitation, Capital Lease
Obligations) up to but not exceeding $50,000 at any one time
outstanding.
9.08 INVESTMENTS. The Company will not, nor will it permit any of
its Subsidiaries to, make or permit to remain outstanding any Investments
except:
(a) Investments outstanding on the date hereof and
identified in Part B of Schedule III hereto;
(b) operating deposit accounts with banks;
(c) Permitted Investments and Investments in capital
stock of the Company made pursuant to the Repurchase
Transaction;
(d) Investments by the Company and its Subsidiaries in capital
stock of Subsidiaries of the Company to the extent outstanding on the
date of the financial statements of the Company and its Subsidiaries
referred to in Section 8.02 hereof and advances by the Company and its
Subsidiaries to
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Subsidiaries of the Company in the ordinary course of business or in
connection with a Relevant Transaction financed with CapEx Loans;
(e) Interest Rate Protection Agreements required to be
maintained under Section 9.18 hereof;
(f) additional Investments up to but not exceeding
$50,000 in the aggregate;
(g) existing and future Investments comprised of stocks, bonds
and notes of existing or former account debtors of the Obligors if such
Investment was received pursuant to the consummation of a bankruptcy
plan of reorganization or similar proceedings of such account debtor;
and
(h) loans or advances by the Company or any of its Subsidiaries
to employees in the ordinary course of business, PROVIDED THAT the
aggregate amount of such loans and advances outstanding at any time
shall not exceed $25,000.
9.09 DIVIDEND PAYMENTS. The Company will not, nor will it permit
any of its Subsidiaries to, declare or make any Dividend Payment at any time
(other than the Dividend Payments made on November 1, 1995 pursuant to the
Repurchase Transaction).
9.10 EBITDA RATIO. The Company will not permit the EBITDA Ratio
to exceed the following respective ratios at any time during the following
respective periods:
PERIOD
RATIO
From the Closing Date
through December 31, 1996
6.00 to 1
From January 1, 1997
through December 31, 1997
5.30 to 1
From January 1, 1998
through December 31, 1998 4.00 to 1
From January 1, 1999
through December 31, 1999 3.00 to 1
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From January 1, 2000
and at all times thereafter
2.00 to 1
9.11 NET WORTH. The Company will not permit its Net
Worth to be less than the following respective amounts at any
time during the following respective periods:
PERIOD
AMOUNT
From the Closing Date
through December 31, 1996
$2,125,000
From January 1, 1997
through December 31, 1997
$3,500,000
From January 1, 1998
through December 31, 1998
$5,500,000
From January 1, 1999
through December 31, 1999
$8,000,000
From January 1, 2000
and at all times thereafter
$10,500,000
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9.12 EBITDA. The Company will not permit (a) its EBITDA for the
six-month period ending on December 31, 1996 to be less than $2,700,000 or (b)
its EBITDA for any fiscal year ending on the dates set forth below to be less
than the following respective amounts:
DATE
AMOUNT
December 31, 1997
$6,000,000
December 31, 1998
$6,900,000
December 31, 1999
$7,100,000
December 31, 2000
$7,250,000
and every December 31 thereafter
9.13 INTEREST COVERAGE RATIO. The Company will not
permit the Interest Coverage Ratio to be less than the following
respective amounts at any time during the following respective
periods:
PERIOD
RATIO
From the Closing Date
through December 31, 1996 1.30 to 1
From January 1, 1997
through December 31, 1997
1.50 to 1
From January 1, 1998
through December 31, 1998 2.00 to 1
From January 1, 1999
and at all times thereafter 2.50 to 1
9.14 FIXED CHARGES RATIO. The Company will not permit
the Fixed Charges Ratio to be less than 1.05 to 1.
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9.15 [INTENTIONALLY DELETED]
9.16 LEVERAGE RATIO. The Company will not permit the
Leverage Ratio to exceed the following respective ratios at any
time during the following respective periods:
PERIOD
RATIO
From the Closing Date
through December 31, 1996 15.00 to 1
From January 1, 1997
through December 31, 1997 9.00 to 1
From January 1, 1998
through December 31, 1998
5.50 to 1
From January 1, 1999
and at all times thereafter
3.30 to 1
9.17 SALE LEASE-BACK TRANSACTIONS. The Company will not, and will
not permit any of its Subsidiaries to, enter into any arrangement with any
Person whereby the Company or such Subsidiary shall sell or otherwise transfer
any of its Property, whether now owned or hereafter acquired, and thereafter
rent or lease such Property or similar Property for substantially the same use
or uses as the Property sold or transferred.
9.18 DISCOUNT OF ACCOUNTS. The Company will not, and will not
permit any of its Subsidiaries to, sell (with or without recourse) or discount
any of their accounts receivable.
9.19 INTEREST RATE PROTECTION AGREEMENTS. The Company will, at
all times after December 31, 1996, maintain in full force and effect one or more
Interest Rate Protection Agreements with ING (or one of its affiliates), that
effectively enables the Company (in a manner satisfactory to the Majority
Lenders), as at any date, to protect itself against interest rates as to a
notional principal amount at least equal to 50% of the then outstanding
principal amount of Term Loans for a period of at least three years.
9.20 SELLER SUBORDINATED DEBT. Neither the Company
nor any of its Subsidiaries will purchase, redeem, retire or
otherwise acquire for value, or set apart any money for a
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sinking, defeasance or other analogous fund for the purchase, redemption,
retirement or other acquisition of, or make any voluntary payment or prepayment
of the principal of or interest on, or any other amount owing in respect of, the
Seller Subordinated Debt, except for regularly scheduled payments of principal
and interest in respect thereof required pursuant to the instruments evidencing
the Seller Subordinated Debt.
9.21 LINES OF BUSINESS. Neither the Company nor any of its
Subsidiaries will engage to any substantial extent in any line or lines of
business activity other than the business of operating (a) correctional and/or
detention facilities or (b) substance abuse rehabilitation facilities provided
that the revenues derived from such facilities are not reimbursable through (a)
the Medicare or Medicaid programs or any other governmental insurance program or
(b) any private insurance.
9.22 TRANSACTIONS WITH AFFILIATES. Except as expressly permitted
by this Agreement, the Company will not, nor will it permit any of its
Subsidiaries to, directly or indirectly: (a) make any Investment in an
Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any
Property to an Affiliate; (c) merge into or consolidate with or purchase or
acquire Property from an Affiliate; or (d) enter into any other transaction
directly or indirectly with or for the benefit of an Affiliate (including,
without limitation, Guarantees and assumptions of obligations of an Affiliate);
PROVIDED that (x) any Affiliate who is an individual may serve as a director,
officer or employee of the Company or any of its Subsidiaries and receive
reasonable compensation for his or her services in such capacity and (y) the
Company and its Subsidiaries may enter into transactions (other than extensions
of credit by the Company or any of its Subsidiaries to an Affiliate or the
payment of management or similar fees by the Company or a Subsidiary to an
Affiliate) providing for the leasing of Property, the rendering or receipt of
services or the purchase or sale of inventory and other Property in the ordinary
course of business if the monetary or business consideration arising therefrom
would be substantially as advantageous to the Company and its Subsidiaries as
the monetary or business consideration that would obtain in a comparable
transaction with a Person not an Affiliate.
9.23 USE OF PROCEEDS. The Company will use the proceeds of the
Loans hereunder solely to (a) refinance all indebtedness outstanding under the
Original Credit Agreement, (b) to pay a portion of the financing for the MidTex
Acquisition and (c) for working capital purposes and Capital Expenditures (in
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each case in compliance with all applicable legal and regulatory requirements);
PROVIDED that none of the Loans shall be used for the purpose of repayment of
the Repurchase Loans; and PROVIDED FURTHER, that neither the Agent nor any
Lender shall have any responsibility as to the use of any of such proceeds.
9.24 CERTAIN OBLIGATIONS RESPECTING SUBSIDIARIES.
(a) The Company will, and will cause each of its Subsidiaries to,
take such action from time to time as shall be necessary to ensure that each of
its Subsidiaries is a Wholly Owned Subsidiary.
(b) In the event that any additional shares of capital stock
shall be issued by any Subsidiary of the Company, the respective Obligor agrees
forthwith to deliver to the Agent pursuant to the Security Agreement the
certificates evidencing such shares of stock, accompanied by undated stock
powers executed in blank and to take such other action as the Agent shall
request to perfect the security interest created therein pursuant to the
Security Agreement.
(c) The Company will take such action, and will cause each of its
Subsidiaries to take such action, from time to time as shall be necessary to
ensure that all Subsidiaries of the Company are Subsidiary Guarantors and,
thereby, "Obligors" hereunder. Without limiting the generality of the foregoing,
in the event that the Company or any of its Subsidiaries shall form or acquire
any new Subsidiary, the Company or the respective Subsidiary will cause such new
Subsidiary to become a "Subsidiary Guarantor" (and, thereby, an "Obligor")
hereunder pursuant to a written instrument in form and substance satisfactory to
each Lender and the Agent, and to deliver such proof of corporate action,
incumbency of officers, opinions of counsel and other documents as is consistent
with those delivered by each Obligor pursuant to Section 7.01 hereof upon the
Closing Date or as any Lender or the Agent shall have requested.
9.25 MODIFICATIONS OF CERTAIN DOCUMENTS. No Obligor will consent
to any material modification, supplement or waiver of any of the provisions of
(a) any agreement, instrument or other document evidencing or relating to the
Seller Subordinated Debt or the Repurchase Transaction and the transactions
contemplated thereby (including, without limitation, the Investors Agreement and
the Stock Option Agreements) (b) any Correctional and Detention Facility
Contract (including, without limitation, the Operating Agreement), or (c) the
certificate of incorporation or by-laws of such Obligor.
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9.26 UNDERWRITTEN INITIAL PUBLIC OFFERING; DEBT
FINANCING. Each Obligor agrees as follows:
(a) Each Obligor will use its best efforts to ensure that ING
Baring (U.S.) Securities, Inc. or an affiliate thereof (collectively "ING
SECURITIES") is named as one of the underwriters in the first tier of
underwriters in any underwritten initial public equity offering of any Obligor
(each, an "EQUITY OFFERING") and in any concurrent offering of debt securities,
PROVIDED that the Obligors shall not be obligated to use such best efforts with
respect to any Equity Offering, if the Securities and Exchange Commission has
declared the Registration Statement with respect to such offering effective and
ING Securities is not then able to act as such an underwriter.
(b) Each Obligor will, prior to engaging any financial advisor in
connection with any debt financing (whether a bank facility, subordinated debt,
privately placed debt or capital markets instrument), other than any debt
financing provided by Llame Co. relating to the Obligors' facilities in Baker,
California, Live Oak, California and Taylor Street, San Francisco, California,
first give ING (or one of its affiliates designated by ING) the right to make
the first offer to such Obligor to act as financial advisor in connection
therewith before such Obligor solicits offers from any other Person (such
Obligor being under no obligation to accept such offer made by ING). In
addition, prior to engaging any such financial advisor in connection with any
such financing, such Obligor will give ING (or such affiliate) the right to
match any offer made by any other Person to act as financial advisor and, if ING
(or such affiliate) is able to offer terms as favorable or more favorable to
such Obligor, such Obligor will accept such offer from ING (or such affiliate).
The provisions of this Section 9.26 shall terminate on the earlier of (i) 18
months after the date hereof and (ii) such time as ING (or one of its
affiliates) shall cease to be the Principal Lender.
(c) The obligations of each obligor under this Section 9.26 shall
survive the termination of this Agreement.
9.27 POST-CLOSING REAL PROPERTY. If any Obligor acquires any
interest in real property (whether in fee or a leasehold estate) after the
Closing Date, such Obligor shall notify the Agent and, upon the request of the
Agent and the Majority Lenders at any time thereafter, shall (or if such
interest in real property is a leasehold estate, shall use its best efforts to):
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(i) furnish to the Agent one or more Mortgages covering
such interest in real property (and, if such real property is a
leasehold estate, appropriate estoppel certificates from the
respective landlords thereof);
(ii) obtain one or more mortgagee policies of title
insurance on forms of and issued by one or more title companies
satisfactory to each Lender (the "TITLE COMPANIES"), insuring the
validity and priority of the Liens created under such Mortgage(s)
for and in amounts satisfactory to each Lender, subject only to
such exceptions as are satisfactory to the Majority Lenders;
(iii) furnish to the Agent as-built surveys of recent date
of such real property, showing such matters as may be required by
any Lender, which surveys shall be in form and content acceptable
to the Majority Lenders, and certified to the Agent and to each
Lender and the Title Companies, and shall have been prepared by a
registered surveyor acceptable to the Majority Lenders; and
(iv) furnish to the Agent certified copies of
unconditional certificates of occupancy (or, if it is not the
practice to issue certificates of occupancy in the jurisdiction
in which the facilities to be covered by such Mortgage(s) are
located, then such other evidence reasonably satisfactory to the
Majority Lenders) permitting the fully functioning operation and
occupancy of each such facility and of such other permits
necessary for the use and operation of each such facility issued
by the respective governmental authorities having jurisdiction
over each such facility. In addition, the Company shall have paid
to the Title Companies all expenses and premiums of the Title
Companies in connection with the issuance of such policies and in
addition shall have paid to the Title Companies an amount equal
to the recording and stamp taxes payable in connection with
recording such Mortgage in the appropriate county land office(s).
9.28 LOCK BOX AGREEMENT. Within 30 Business Days after the Closing Date,
the Company shall provide the Agent with a true and complete copy of a fully
executed lock box agreement (in form and substance satisfactory to the Agent),
providing for all payments in respect of the Operating Agreement to be made
directly to a bank account ("LOCK BOX ACCOUNT") under the sole dominion and
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control of the Agent, and that upon occurrence of a default all amounts in the
Lock Box Account shall at the Agent's election be applied to amounts due under
this Agreement.
9.29 THE CORNELL COX GROUP, L.P. The Cornell Cox Group, L.P., a Delaware
limited partnership, shall not hold or acquire any Property and shall not incur
any Indebtedness or other liabilities in addition to those in existence as of
the date hereof, which are correctly set forth on Schedule VI hereto.
Section 10. EVENTS OF DEFAULT. If one or more of the
following events (herein called "EVENTS OF DEFAULT") shall occur
and be continuing:
(a) The Company shall: (i) default in the payment of any
principal of any Loan or any Reimbursement Obligation when due (whether
at stated maturity or at mandatory or optional prepayment); or (ii)
default in the payment of any interest on any Loan, any fee or any other
amount payable by it hereunder or under any other Basic Document when
due and such default shall have continued unremedied for one Business
Day; or
(b) The Company or any of its Subsidiaries shall default in the
payment when due of any principal of or interest on any of its other
Indebtedness aggregating $100,000 or more, or in the payment when due of
any amount under any Interest Rate Protection Agreement; or any event
specified in any note, agreement, indenture or other document evidencing
or relating to any such Indebtedness or any event specified in any
Interest Rate Protection Agreement shall occur if the effect of such
event is to cause, or (with the giving of any notice or the lapse of
time or both) to permit the holder or holders of such Indebtedness (or a
trustee or agent on behalf of such holder or holders) to cause, such
Indebtedness to become due, or to be prepaid in full (whether by
redemption, purchase, offer to purchase or otherwise), prior to its
stated maturity or, in the case of an Interest Rate Protection
Agreement, to permit the payments owing under such Interest Rate
Protection Agreement to be liquidated; or
(c) Any representation, warranty or certification made or deemed
made herein or in any other Basic Document (or in any modification or
supplement hereto or thereto) by any Obligor, or any certificate
furnished to any Lender or the Agent pursuant to the provisions hereof
or thereof, shall
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prove to have been false or misleading as of the time made
or furnished in any material respect; or
(d) The Company shall default in the performance of any of its
obligations under any of Sections 9.01(j), 9.05, 9.06, 9.07, 9.08, 9.09,
9.10, 9.11, 9.12, 9.13, 9.14, 9.15, 9.16, 9.17, 9.18, 9.19, 9.21 or 9.23
hereof; or any Obligor shall default in the performance of any of its
obligations under Section 4.2 or 5.2 of the Security Agreement; or
"Event of Default" under any Mortgage; or any Obligor shall default in
the performance of any of its other obligations in this Agreement or any
other Basic Document and such default shall continue unremedied for a
period of thirty or more days after notice thereof to the Company by the
Agent or any Lender (through the Agent); or
(e) The Company or any of its Subsidiaries shall admit in writing
its inability to, or be generally unable to, pay its debts as such debts
become due; or
(f) The Company or any of its Subsidiaries shall (i) apply for or
consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee, examiner or liquidator of itself or of all
or a substantial part of its Property, (ii) make a general assignment
for the benefit of its creditors, (iii) commence a voluntary case under
the Bankruptcy Code, (iv) file a petition seeking to take advantage of
any other law relating to bankruptcy, insolvency, reorganization,
liquidation, dissolution, arrangement or winding-up, or composition or
readjustment of debts, (v) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Bankruptcy Code or (vi) take
any corporate action for the purpose of effecting any of the foregoing;
or
(g) A proceeding or case shall be commenced, without the
application or consent of such of the Company or any of its Subsidiaries
as is affected thereby, in any court of competent jurisdiction, seeking
(i) the reorganization, liquidation, dissolution, arrangement or
winding-up, or the composition or readjustment of the debts of the
Company or any of its Subsidiaries, (ii) the appointment of a receiver,
custodian, trustee, examiner, liquidator or the like of the Company or
any of its Subsidiaries or of all or any substantial part of its
Property, or (iii) similar relief in respect of the Company or any of
its Subsidiaries under any law relating to bankruptcy, insolvency,
reorganization,
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winding-up, or composition or adjustment of debts, and such proceeding
or case shall continue undismissed, or an order, judgment or decree
approving or ordering any of the foregoing shall be entered and continue
unstayed and in effect, for a period of 60 or more days; or an order for
relief against the Company or any of its Subsidiaries shall be entered
in an involuntary case under the Bankruptcy Code; or
(h) A final judgment or judgments for the payment of money in an
amount in excess of $100,000 shall be rendered by one or more courts,
administrative tribunals or other bodies having jurisdiction against the
Company or any of its Subsidiaries and the same shall not be discharged
(or provision shall not be made for such discharge), or a stay of
execution thereof shall not be procured, within 30 days from the date of
entry thereof and the Company or such Subsidiary (as the case may be)
shall not, within said period of 30 days, or such longer period during
which execution of the same shall have been stayed, appeal therefrom and
cause the execution thereof to be stayed during such appeal; or
(i) An event or condition specified in Section 9.01(i) hereof
shall occur or exist with respect to any Plan or Multiemployer Plan and,
as a result of such event or condition, together with all other such
events or conditions, the Company or any ERISA Affiliate shall incur or
in the opinion of the Majority Lenders shall be reasonably likely to
incur a liability to a Plan, a Multiemployer Plan or PBGC (or any
combination of the foregoing) that, in the determination of the Majority
Lenders, would (either individually or in the aggregate) have a Material
Adverse Effect; or
(j) A reasonable basis shall exist for the assertion against the
Company or any of its Subsidiaries, or any predecessor in interest of
the Company or any of its Subsidiaries or Affiliates, of (or there shall
have been asserted against the Company or any of its Subsidiaries) an
Environmental Claim that, in the judgment of the Majority Lenders is
reasonably likely to be determined adversely to the Company or any of
its Subsidiaries, and the amount thereof (either individually or in the
aggregate) is reasonably likely to have a Material Adverse Effect
(insofar as such amount is payable by the Company or any of its
Subsidiaries but after deducting any portion thereof that is
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reasonably expected to be paid by other creditworthy Persons
jointly and severally liable therefor); or
(k) (i) One or more members of the Charterhouse Group and/or
Dillon Read shall cease to own beneficially and of record at least 51%
of the issued and outstanding capital stock of the Company (exclusive of
any capital stock acquired upon the exercise of warrants issued to any
Lender); or (ii) Dillon Read or Charterhouse Group shall default in the
performance of any of their respective obligations under the Investors
Agreement or under the Put Agreement to be entered into in connection
with the Convertible Subordinated Note; or (iii) the Convertible
Subordinated Note, together with accrued interest thereon, shall not
have been paid in full in cash on or prior to December 31, 1996; or
(l) Any of Steven Logan, Marvin Wiebe or David Cornell shall (for
whatever reason) cease to be actively involved in, or shall engage in
any material business enterprise other than, the day-to-day management
of the Company (unless a successor acceptable to the Majority Lenders
shall have replaced such individual within 120 days thereafter); or
(m) The Liens created by the Security Documents shall at any time
not constitute a valid and perfected Lien on the collateral stated to be
covered thereby (to the extent perfection by filing, registration,
recordation or possession is required herein or therein) in favor of the
Agent, free and clear of all other Liens (other than Liens permitted
under Section 9.06 hereof or under the respective Security Documents),
or, except for expiration in accordance with its terms, any of the
Security Documents shall for whatever reason be terminated or cease to
be in full force and effect, or the enforceability thereof shall be
contested by any Obligor; or
(n) Any of the following:
(i) 15 Business Days shall have elapsed after any material
Correctional and Detention Facility Contract shall have been
terminated and shall not have been renewed on substantially the
same terms or terms more favorable to the Obligors (unless during
such 15 Business Day period the Company shall have demonstrated
to the satisfaction of the Agent and each Lender that such
termination will not have a Material Adverse Effect); or
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(ii) the payment terms of any material Correctional and
Detention Facility Contract shall be modified or any other terms
of any material Correctional and Detention Facility Contract
shall be modified in any respect which the Majority Lenders
determine could reasonably be expected to have a Material Adverse
Effect; or
(iii) any Obligor shall default in the performance
of any of its material obligations under any material
Correctional and Detention Facility Contract; or
(iv) any party to any Correctional and Detention Facility
Contract (other than an Obligor) shall default in the performance
of any of its material obligations thereunder; or
(v) an event or condition of the type described in Section
10(f) or 10(g) shall occur or exist with respect to any party to
any material Correctional and Detention Facility Contract (other
than an Obligor); or
(vi) any relevant legislature or administrative body shall
fail to appropriate any material amount of funds in respect of
any material Correctional and Detention Facility Contract
(for purposes of this clause (n) and the following clause (o), a
Correctional and Detention Facility Contract shall be deemed to be
"material" if the failure of the Obligors to receive the amounts stated
to be due and owing thereunder could reasonably be expected to have a
Material Adverse Effect); or
(o) Any Use Permit relating to a material Correctional and
Detention Facility Agreement shall be revoked, withdrawn or otherwise
terminated; or any Use Permit relating to a material Correctional and
Detention Facility Agreement shall be modified, amended or supplemented
in a way which the Majority Lenders determine could have a Material
Adverse Effect; or
(p) Any Obligor shall lose its accreditation with the
American Correctional Association;
THEREUPON: (1) in the case of an Event of Default other than one
referred to in clause (f) or (g) of this Section 10 with respect
to any Obligor, (A) the Agent may and, upon request of the
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Majority Lenders shall, by notice to the Company, terminate the Commitments and
they shall thereupon terminate, and (B) the Agent may and, upon request of the
Majority Lenders shall by notice to the Company, declare the principal amount
then outstanding of, and the accrued interest on, the Loans, the Reimbursement
Obligations and all other amounts payable by the Obligors hereunder and under
the Notes to be forthwith due and payable, whereupon such amounts shall be
immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by each
Obligor; and (2) in the case of the occurrence of an Event of Default referred
to in clause (f) or (g) of this Section 10 with respect to any Obligor, the
Commitments shall automatically be terminated and the principal amount then
outstanding of, and the accrued interest on, the Loans, the Reimbursement
Obligations and all other amounts payable by the Obligors hereunder and under
the Notes shall automatically become immediately due and payable without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by each Obligor.
In addition, upon the occurrence and during the continuance of any Event
of Default (if the Agent has declared the principal amount then outstanding of,
and accrued interest on, the Loans and all other amounts payable by the Company
hereunder and under the Notes to be due and payable), the Company agrees that it
shall, if requested by the Agent or the Majority Lenders through the Agent (and,
in the case of any Event of Default referred to in clause (f) or (g) of this
Section 10 with respect to any Obligor, forthwith, without any demand or the
taking of any other action by the Agent or the Lenders) provide cover for the
Letter of Credit Liabilities by paying to the Agent immediately available funds
in an amount equal to the then aggregate undrawn face amount of all Letters of
Credit, which funds shall be held by the Agent in the Collateral Account as
collateral security in the first instance for the Letter of Credit Liabilities
and be subject to withdrawal only as therein provided.
Section 11. THE AGENT.
11.01 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under the other Basic Documents with such powers as are specifically delegated
to the Agent by the terms of this Agreement and of the other Basic Documents,
together with such other powers as are reasonably incidental thereto. The Agent
(which term as used in this sentence and in Section 11.05 and the first sentence
of Section 11.06 hereof shall include
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reference to its affiliates and its own and its affiliates' officers, directors,
employees and agents): (a) shall have no duties or responsibilities except those
expressly set forth in this Agreement and in the other Basic Documents, and
shall not by reason of this Agreement or any other Basic Document be a trustee
for any Lender; (b) shall not be responsible to the Lenders for any recitals,
statements, representations or warranties contained in this Agreement or in any
other Basic Document, or in any certificate or other document referred to or
provided for in, or received by any of them under, this Agreement or any other
Basic Document, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement, any Note or any other Basic
Document or any other document referred to or provided for herein or therein or
for any failure by the Company or any other Person to perform any of its
obligations hereunder or thereunder; (c) shall not be required to initiate or
conduct any litigation or collection proceedings hereunder or under any other
Basic Document; and (d) shall not be responsible for any action taken or omitted
to be taken by it hereunder or under any other Basic Document or under any other
document or instrument referred to or provided for herein or therein or in
connection herewith or therewith, except for its own gross negligence or willful
misconduct. The Agent may employ agents and attorneys-in-fact and shall not be
responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith. The Agent may deem and treat the
payee of any Note as the holder thereof for all purposes hereof unless and until
a notice of the assignment or transfer thereof shall have been filed with the
Agent, together with the consent of the Company to such assignment or transfer
(to the extent provided in Section 12.06(b) hereof).
11.02 RELIANCE BY AGENT. The Agent shall be entitled to rely upon
any certification, notice or other communication (including, without limitation,
any thereof by telephone, telecopy, telex, telegram or cable) believed by it to
be genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. As to any
matters not expressly provided for by this Agreement or any other Basic
Document, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or thereunder in accordance with instructions
given by the Majority Lenders or, if provided herein, in accordance with the
instructions given all of the Lenders, and such instructions of such Lenders and
any action taken or failure to act pursuant thereto shall be binding on all of
the Lenders.
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11.03 DEFAULTS. The Agent shall not be deemed to have knowledge
or notice of the occurrence of a Default unless the Agent has received notice
from a Lender or the Company specifying such Default and stating that such
notice is a "Notice of Default". In the event that the Agent receives such a
notice of the occurrence of a Default, the Agent shall give prompt notice
thereof to the Lenders. The Agent shall (subject to Section 11.07 hereof) take
such action with respect to such Default as shall be directed by the Majority
Lenders, PROVIDED that, unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default as it shall deem
advisable in the best interest of the Lenders except to the extent that this
Agreement expressly requires that such action be taken, or not be taken, only
with the consent or upon the authorization of the Majority Lenders or all of the
Lenders.
11.04 RIGHTS AS A LENDER. With respect to its Commitments and the
Loans made by it, ING (and any successor acting as Agent) in its capacity as a
Lender hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting as the Agent, and
the term "Lender" or "Lenders" shall, unless the context otherwise indicates,
include the Agent in its individual capacity. ING (and any successor acting as
Agent) and its affiliates may (without having to account therefor to any Lender)
accept deposits from, lend money to, make investments in and generally engage in
any kind of banking, trust or other business with the Obligors (and any of their
Subsidiaries or Affiliates) as if it were not acting as the Agent, and ING and
its affiliates may accept fees and other consideration from the Obligors for
services in connection with this Agreement or otherwise without having to
account for the same to the Lenders.
11.05 INDEMNIFICATION. The Lenders agree to indemnify the Agent
(to the extent not reimbursed under Section 12.03 hereof, but without limiting
the obligations of the Company under said Section 12.03, and including in any
event any payments under any indemnity that the Agent is required to issue to
any bank referred to in Section 4.02 of the Security Agreement to which
remittances in respect of Accounts, as defined therein, are to be made) ratably
in accordance with their respective Commitments, for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever that may be imposed
on, incurred by or asserted against the Agent (including by any Lender) arising
out of or by reason of any investigation
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in or in any way relating to or arising out of this Agreement or any other Basic
Document or any other documents contemplated by or referred to herein or therein
or the transactions contemplated hereby or thereby (including, without
limitation, the costs and expenses that the Company is obligated to pay under
Section 12.03 hereof, but excluding, unless a Default has occurred and is
continuing, normal administrative costs and expenses incident to the performance
of its agency duties hereunder) or the enforcement of any of the terms hereof or
thereof or of any such other documents, PROVIDED that no Lender shall be liable
for any of the foregoing to the extent they arise from the gross negligence or
willful misconduct of the party to be indemnified.
11.06 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender agrees
that it has, independently and without reliance on the Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Company and its Subsidiaries
and decision to enter into this Agreement and that it will, independently and
without reliance upon the Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking or not taking action under this Agreement
or under any other Basic Document. The Agent shall not be required to keep
itself informed as to the performance or observance by any Obligor of this
Agreement or any of the other Basic Documents or any other document referred to
or provided for herein or therein or to inspect the Properties or books of the
Company or any of its Subsidiaries. Except for notices, reports and other
documents and information expressly required to be furnished to the Lenders by
the Agent hereunder or under the Security Documents, the Agent shall not have
any duty or responsibility to provide any Lender with any credit or other
information concerning the affairs, financial condition or business of the
Company or any of its Subsidiaries (or any of their affiliates) that may come
into the possession of the Agent or any of its affiliates.
11.07 FAILURE TO ACT. Except for action expressly required of the
Agent hereunder and under the other Basic Documents, the Agent shall in all
cases be fully justified in failing or refusing to act hereunder and thereunder
unless it shall receive further assurances to its satisfaction from the Lenders
of their indemnification obligations under Section 11.05 hereof against any and
all liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.
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11.08 RESIGNATION OR REMOVAL OF AGENT. Subject to the appointment
and acceptance of a successor Agent as provided below, the Agent may resign at
any time by giving notice thereof to the Lenders and the Company, and the Agent
may be removed at any time with or without cause by the Majority Lenders. Upon
any such resignation or removal, the Majority Lenders shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed by
the Majority Lenders and shall have accepted such appointment within 30 days
after the retiring Agent's giving of notice of resignation or the Majority
Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent, that shall be a financial institution
that has an office in New York, New York. Upon the acceptance of any appointment
as Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Section 11 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken by
it while it was acting as the Agent. The Agent may at any time assign all of its
rights and obligations hereunder to any affiliate of the Agent by notice to the
Company and each Lender.
11.09 AGENCY FEE. So long as the Commitments are in effect and
until payment in full of the principal of and interest on the Loans and all
other amounts payable by the Company hereunder, the Company will pay to the
Agent an agency fee of $10,000 per quarter, payable in arrears on the Quarterly
Dates.
Such fee, once paid, shall be non-refundable.
11.10 CONSENTS UNDER OTHER BASIC DOCUMENTS. Except as otherwise
provided in Section 12.04 hereof with respect to this Agreement, the Agent may,
with the prior consent of the Majority Lenders (but not otherwise), consent to
any modification, supplement or waiver under any of the Basic Documents,
PROVIDED that, without the prior consent of each Lender, the Agent shall not
(except as provided herein or in the Security Documents) release any collateral
or otherwise terminate any Lien under any Basic Document providing for
collateral security, or agree to additional obligations being secured by such
collateral security, except that no such consent shall be required, and the
Agent is hereby authorized, to release any Lien covering Property that is the
subject of a disposition of Property permitted hereunder or to which the
Majority Lenders have consented.
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Section 12. MISCELLANEOUS.
12.01 WAIVER. No failure on the part of the Agent or any Lender
to exercise and no delay in exercising, and no course of dealing with respect
to, any right, power or privilege under this Agreement or any Note shall operate
as a waiver thereof, nor shall any single or partial exercise of any right,
power or privilege under this Agreement or any Note preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
Each Obligor irrevocably waives, to the fullest extent permitted
by applicable law, any claim that any action or proceeding commenced by the
Agent or any Lender relating in any way to this Agreement should be dismissed or
stayed by reason, or pending the resolution, of any action or proceeding
commenced by any Obligor relating in any way to this Agreement whether or not
commenced earlier. To the fullest extent permitted by applicable law, the
Obligors shall take all measures necessary for any such action or proceeding
commenced by the Agent or any Lender to proceed to judgment prior to the entry
of judgment in any such action or proceeding commenced by any Obligor.
12.02 NOTICES. All notices, requests and other communications
provided for herein and under the Security Documents (including, without
limitation, any modifications of, or waivers, requests or consents under, this
Agreement) shall be given or made in writing (including, without limitation, by
telex or telecopy), delivered to the intended recipient at the "Address for
Notices" specified below its name on the signature pages hereof (below the name
of the Company, in the case of any Subsidiary Guarantor); or, as to any party,
at such other address as shall be designated by such party in a notice to each
other party. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by telex
or telecopier or personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as aforesaid.
12.03 EXPENSES, ETC. The Company agrees to pay or reimburse each
of the Lenders and the Agent for: (a) all reasonable out-of-pocket costs and
expenses of the Agent (including, without limitation, the reasonable fees and
expenses of Mayer, Brown & Platt, special New York counsel to ING) in connection
with (i) the negotiation, preparation, execution and delivery of this Agreement
and the other Basic Documents and the
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extension of credit hereunder and (ii) the negotiation or preparation of any
modification, supplement or waiver of any of the terms of this Agreement or any
of the other Basic Documents (whether or not consummated); (b) all reasonable
out-of-pocket costs and expenses of the Lenders and the Agent (including,
without limitation, the reasonable fees and expenses of legal counsel) in
connection with (i) any Default and any enforcement or collection proceedings
resulting therefrom, including, without limitation, all manner of participation
in or other involvement with (x) bankruptcy, insolvency, receivership,
foreclosure, winding up or liquidation proceedings, (y) judicial or regulatory
proceedings and (z) workout, restructuring or other negotiations or proceedings
(whether or not the workout, restructuring or transaction contemplated thereby
is consummated) and (ii) the enforcement of this Section 12.03; and (c) all
transfer, stamp, documentary or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect of this Agreement or
any of the other Basic Documents or any other document referred to herein or
therein and all costs, expenses, taxes, assessments and other charges incurred
in connection with any filing, registration, recording or perfection of any
security interest contemplated by any Basic Document or any other document
referred to therein.
The Company hereby agrees to indemnify the Agent and each Lender
and their respective directors, officers, employees, attorneys and agents from,
and hold each of them harmless against, any and all losses, liabilities, claims,
damages or expenses incurred by any of them (including, without limitation, any
and all losses, liabilities, claims, damages or expenses incurred by the Agent
to any Lender, whether or not the Agent or any Lender is a party thereto)
arising out of or by reason of any investigation or litigation or other
proceedings (including any threatened investigation or litigation or other
proceedings) relating to the Repurchase Transaction and the transactions
contemplated thereby, the extensions of credit hereunder or any actual or
proposed use by the Company or any of its Subsidiaries of the proceeds of any of
the extensions of credit hereunder, including, without limitation, the
reasonable fees and disbursements of counsel incurred in connection with any
such investigation or litigation or other proceedings (but excluding any such
losses, liabilities, claims, damages or expenses incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified). Without
limiting the generality of the foregoing, the Company will (x) indemnify the
Agent for any payments that the Agent is required to make under any indemnity
issued to any bank referred to in Section 4.02 of the Security Agreement to
which remittances in respect to
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Accounts, as defined therein, are to be made and (y) indemnify the Agent and
each Lender from, and hold the Agent and each Lender harmless against, any
losses, liabilities, claims, damages or expenses described in the preceding
sentence arising under any Environmental Law as a result of (i) the past,
present or future operations of the Company or any of its Subsidiaries (or any
predecessor in interest to the Company or any of its Subsidiaries), or (ii) the
past, present or future condition of any site or facility owned, operated or
leased at any time by the Company or any of its Subsidiaries (or any such
predecessor in interest), or (iii) any Release or threatened Release of any
Hazardous Materials at or from any such site or facility, including any such
Release or threatened Release that shall occur during any period when the Agent
or any Lender shall be in possession of any such site or facility following the
exercise by the Agent or any Lender of any of its rights and remedies hereunder
or under any of the Security Documents, PROVIDED THAT the Company shall not be
liable under this subclause (y) for any of the foregoing to the extent they
arise solely from the gross negligence or willful misconduct of the party to be
indemnified (or such party's employees or agents).
12.04 AMENDMENTS, ETC. Except as otherwise expressly provided in
this Agreement, any provision of this Agreement may be modified or supplemented
only by an instrument in writing signed by the Company, the Agent and the
Majority Lenders, or by the Company and the Agent acting with the consent of the
Majority Lenders, and any provision of this Agreement may be waived by the
Majority Lenders or by the Agent acting with the consent of the Majority
Lenders; PROVIDED that: (a) no modification, supplement or waiver shall, unless
by an instrument signed by all of the Lenders or by the Agent acting with the
consent of all of the Lenders: (i) increase, or extend the term of any of the
Commitments, or extend the time or waive any requirement for the reduction or
termination of any of the Commitments, (ii) extend the date fixed for the
payment of principal of or interest on any Loan, the Reimbursement Obligations
or any fee hereunder, (iii) reduce the amount of any such payment of principal,
(iv) reduce the rate at which interest is payable thereon or any fee is payable
hereunder, (v) alter the rights or obligations of the Company to prepay Loans,
(vi) alter the terms of this Section 12.04, (vii) modify the definition of the
term "Majority Lenders" or modify in any other manner the number or percentage
of the Lenders required to make any determinations or waive any rights hereunder
or to modify any provision hereof, or (viii) waive any of the conditions
precedent set forth in Section 7.01 or 7.02 hereof; (b) any modification or
supplement of Section 11 hereof shall require the consent of the Agent; and
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(c) any modification or supplement of Section 6 hereof shall require the consent
of each Subsidiary Guarantor.
12.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
12.06 ASSIGNMENTS AND PARTICIPATIONS.
(a) No Obligor may assign any of its rights or obligations
hereunder or under the Notes without the prior consent of all of the Lenders and
the Agent.
(b) Each Lender may, with the consent of the Agent and the Letter
of Credit Issuer, assign any of its Loans, its Notes, its Letter of Credit
Liabilities and its Commitments (and, in the case of its outstanding
Commitments, only with the consent of the Company which consent shall not be
unreasonably withheld); PROVIDED that (i) no such consent by the Company or the
Agent shall be required in the case of any assignment to another Lender; (ii)
any such partial assignment shall be in an amount at least equal to $500,000;
(iii) each such assignment by a Lender of its Revolving Credit Loans or
Revolving Credit Commitment shall be made in such manner so that the same
portion of its Revolving Credit Loans and Revolving Credit Commitment is
assigned to the respective assignee; (iv) each such assignment by a Lender of
its Term Loans or Term Loan Commitment shall be made in such manner so that the
same portion of its Term Loans and Term Loan Commitment is assigned to the
respective assignee; and (v) each such assignment by a Lender of its CapEx
Loans, Letter of Credit Liabilities or CapEx Loan Commitment shall be made in
such manner so that the same portion of its CapEx Loans, Letter of Credit
Liabilities and CapEx Loan Commitment is assigned to the respective assignee.
Upon execution and delivery by the assignee to the Company and the Agent of an
instrument in writing pursuant to which such assignee agrees to become a
"Lender" hereunder (if not already a Lender) having the Commitment(s), Letter of
Credit Liabilities and Loans specified in such instrument, and upon consent
thereto by the Company and the Agent, to the extent required above, the assignee
shall have, to the extent of such assignment (unless otherwise provided in such
assignment with the consent of the Company and the Agent), the obligations,
rights and benefits of a Lender hereunder holding the Commitment(s), Letter of
Credit Liabilities and Loans (or portion thereof) assigned to it (in addition to
the Commitment(s), Letter of Credit Liabilities and Loans, if any, theretofore
held by such assignee) and the assigning Lender shall, to the extent of such
assignment, be released from the
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Commitment(s) (or portion(s) thereof) so assigned. Upon each such assignment,
the assigning Lender shall pay the Agent an assignment fee of $3,000.
(c) A Lender may sell or agree to sell to one or more other
Persons a participation in all or any part of any Loans or Letter of Credit
Interest held by it, or in its Commitments, in which event each purchaser of a
participation (a "PARTICIPANT") shall be entitled to the rights and benefits of
the provisions of Section 9.01(k) hereof with respect to its participation in
such Loans, Letter of Credit Interest and Commitments as if (and the Company
shall be directly obligated to such Participant under such provisions as if)
such Participant were a "Lender" for purposes of said Section, but, except as
otherwise provided in Section 4.07(c) hereof, shall not have any other rights or
benefits under this Agreement or any Note or any other Basic Document (the
Participant's rights against such Lender in respect of such participation to be
those set forth in the agreements executed by such Lender in favor of the
Participant). All amounts payable by the Company to any Lender under Section 5
hereof in respect of Loans and Letter of Credit Interest held by it, and its
Commitments, shall be determined as if such Lender had not sold or agreed to
sell any participations in such Loans, Letter of Credit Interest and
Commitments, and as if such Lender were funding each of such Loan, Letter of
Credit Interest and Commitments in the same way that it is funding the portion
of such Loan and Commitments in which no participations have been sold. In no
event shall a Lender that sells a participation agree with the Participant to
take or refrain from taking any action hereunder or under any other Basic
Document except that such Lender may agree with the Participant that it will
not, without the consent of the Participant, agree to (i) increase or extend the
term, or extend the time or waive any requirement for the reduction or
termination, of such Lender's related Commitment, (ii) extend the date fixed for
the payment of principal of or interest on the related Loan or Loans,
Reimbursement Obligations or any portion of any fee hereunder payable to the
Participant, (iii) reduce the amount of any such payment of principal, (iv)
reduce the rate at which interest is payable thereon, or any fee hereunder
payable to the Participant, to a level below the rate at which the Participant
is entitled to receive such interest or fee, (v) alter the rights or obligations
of the Company to prepay the related Loans or (vi) consent to any modification,
supplement or waiver hereof or of any of the other Basic Documents to the extent
that the same, under Section 11.10 or 12.04 hereof, requires the consent of each
Lender.
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(d) In addition to the assignments and participations permitted
under the foregoing provisions of this Section 12.06, any Lender may (without
notice to the Company, the Agent or any other Lender and without payment of any
fee) (i) assign and pledge all or any portion of its Loans and its Notes to any
Federal Reserve Bank as collateral security pursuant to Regulation A and any
Operating Circular issued by such Federal Reserve Bank and (ii) assign all or
any portion of its rights under this Agreement and its Loans and its Notes to an
affiliate. No such assignment shall release the assigning Lender from its
obligations hereunder.
(e) A Lender may furnish any information concerning the Company
or any of its Subsidiaries in the possession of such Lender from time to time to
assignees and participants (including prospective assignees and participants),
subject, however, to the provisions of Section 12.12 hereof.
(f) Anything in this Section 12.06 to the contrary
notwithstanding, no Lender may assign or participate any interest in any Loan or
Reimbursement Obligation held by it hereunder to the Company or any of its
Affiliates or Subsidiaries without the prior consent of each Lender.
12.07 SURVIVAL. The obligations of the Company under Sections
5.01, 5.05 and 12.03 hereof, the obligations of each Subsidiary Guarantor under
Section 6.03 hereof, and the obligations of the Lenders under Section 11.05
hereof, shall survive the repayment of the Loans and the Reimbursement
Obligations and the termination of the Commitments.
12.08 CAPTIONS. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
12.09 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
12.10 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement
and the Notes shall be governed by, and construed in accordance with, the law of
the State of New York. Each Obligor hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of any New York state court sitting in New York City for the
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purposes of all legal proceedings arising out of or relating to this Agreement
or the transactions contemplated hereby. Each Obligor irrevocably waives, to the
fullest extent permitted by applicable law, any objection that it may now or
hereafter have to the laying of the venue of any such proceeding brought in such
a court and any claim that any such proceeding brought in such a court has been
brought in an inconvenient forum.
12.11 WAIVER OF JURY TRIAL. EACH OF THE OBLIGORS, THE AGENT AND
THE LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
12.12 CONFIDENTIALITY. Each Lender and the Agent agrees (on
behalf of itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
of the same nature and in accordance with safe and sound banking practices, any
non-public information supplied to it by the Company pursuant to this Agreement,
PROVIDED that nothing herein shall limit the disclosure of any such information
(i) to the extent required by statute, rule, regulation or judicial process,
(ii) to counsel for any of the Lenders or the Agent, (iii) to bank examiners,
auditors or accountants, (iv) to the Agent or any other Lender, (v) in
connection with any litigation to which any one or more of the Lenders or the
Agent is a party relating to any of the Obligors or the transactions
contemplated hereby, (vi) to a subsidiary or affiliate of such Lender or (vii)
to any assignee or participant (or prospective assignee or participant) so long
as such assignee or participant (or prospective assignee or participant) first
executes and delivers to the respective Lender a Confidentiality Agreement
substantially in the form of Exhibit E hereto; PROVIDED, FURTHER, that in no
event shall any Lender or the Agent be obligated or required to return any
materials furnished by the Company.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the day and year first above written.
CORNELL CORRECTIONS, INC.
By /S/ STEVEN W. LOGAN
Title: Chief Financial Officer
Address for Notices:
Cornell Corrections, Inc.
4801 Woodway
Suite 400 West
Houston, Texas 77056
Attention: Mr. Steve Logan
Telecopier No.: (713) 623-2853
Telephone No.: (713) 623-0790
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SUBSIDIARY GUARANTORS
CORNELL CORRECTIONS MANAGEMENT, INC.
By /S/ STEVEN W. LOGAN
Title: Chief Financial Offier
CORNELL CORRECTIONS CONSULTING, INC.
By /S/ STEVEN W. LOGAN
Title: Chief Financial Offier
CORNELL CORRECTIONS OF RHODE ISLAND, INC.
By /S/ STEVEN W. LOGAN
Title: Chief Financial Offier
THE CORNELL COX GROUP, L.P.
By CORNELL CORRECTIONS OF NORTH AMERICA, INC.
By /S/ STEVEN W. LOGAN
Title: Chief Financial Offier
CORNELL CORRECTIONS OF NORTH AMERICA, INC.
By /S/ STEVEN W. LOGAN
Title: Chief Financial Offier
CORNELL CORRECTIONS OF TEXAS, INC.
By /S/ STEVEN W. LOGAN
Title: Chief Financial Offier
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CORNELL CORRECTIONS OF CALIFORNIA, INC.
By /S/ STEVEN W. LOGAN
Title: Chief Financial Offier
INTERNATIONAL SELF-HELP SERVICES, INC.
By /S/ DAVID BALESTRERY
Title: Senior Associate
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LENDERS
REVOLVING CREDIT COMMITMENT INTERNATIONALE NEDERLANDEN
$2,500,000 (U.S.) CAPITAL CORPORATION
TERM LOAN COMMITMENT
$23,200,000
By /S/ DAVID BALESTRERY
CAPEX LOAN COMMITMENT Title: Senior Associate
$6,950,000
REPURCHASE LOAN COMMITMENT
$2,350,000
Lending Office for all Loans:
ING Capital
135 East 57th Street
New York, New York 10022-2101
Address for Notices:
ING Capital
135 East 57th Street
New York, New York 10022-2101
Attention: Merchant Banking Group
New York
Mr. David Scopelliti
Mr. David Balestrery
Telecopier No.: (212) 593-3362
Telephone No.: (212) 446-1955
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INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION, as Agent
By /S/ DAVID BALESTRERY
Title: Senior Associate
Address for Notices to
ING as Agent:
ING Capital
135 East 57th Street
New York, New York 10022-2101
Attention: Merchant Banking Group
New York
Mr. David Scopelliti
Mr. David Balestrery
Telecopier No.: (212) 593-3362
Telephone No.: (212) 446-1955
-122-
SCHEDULE I
MATERIAL AGREEMENTS AND LIENS
OMITTED
<PAGE>
SCHEDULE II
ENVIRONMENTAL MATTERS
OMITTED
<PAGE>
SCHEDULE III
SUBSIDIARIES AND INVESTMENTS
OMITTED
<PAGE>
SCHEDULE IV
REAL PROPERTY
OMITTED
<PAGE>
SCHEDULE V
Capital Stock, Equity Rights and Registration Rights
OMITTED
<PAGE>
SCHEDULE VI
EXISTING PROPERTY, INDEBTEDNESS AND LIABILITIES OF CORNELL COX GROUP, L.P.
OMITTED
<PAGE>
EXHIBIT A-1
[FORM OF REVOLVING CREDIT NOTE]
<PAGE>
EXHIBIT A-1
[Form of Revolving Credit Note]
PROMISSORY NOTE
$ , 1996
---------------------------- -------------------
New York, New York
FOR VALUE RECEIVED, CORNELL CORRECTIONS, INC., a Delaware
corporation (the "COMPANY"), hereby promises to pay to ______________ (the
"LENDER"), for account of its respective Applicable Lending Offices provided for
by the Credit Agreement referred to below, at account number 600-07-116 (ABA No.
021000238) maintained by Internationale Nederlanden (U.S.) Capital Corporation
at Morgan Guaranty Trust Company of New York at 23 Wall Street, New York, New
York 10005, the principal sum of __________ Dollars (or such lesser amount as
shall equal the aggregate unpaid principal amount of the Revolving Credit Loans
made by the Lender to the Company under the Credit Agreement), in lawful money
of the United States of America and in immediately available funds, on the dates
and in the principal amounts provided in the Credit Agreement, and to pay
interest on the unpaid principal amount of each such Revolving Credit Loan, at
such office, in like money and funds, for the period commencing on the date of
such Revolving Credit Loan until such Revolving Credit Loan shall be paid in
full, at the rates per annum and on the dates provided in the Credit Agreement.
The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Revolving Credit Loan made by the Lender to the
Company, and each payment made on account of the principal thereof, shall be
recorded by the Lender on its books and, prior to any transfer of this Note,
endorsed by the Lender on the schedule attached hereto or any continuation
thereof, PROVIDED that the failure of the Lender to make any such recordation or
endorsement shall not affect the obligations of the Company to make a payment
when due of any amount owing under the Credit Agreement or hereunder in respect
of the Revolving Credit Loans made by the Lender.
This Note is one of the Revolving Credit Notes referred to in the
Credit Agreement dated as of July 3, 1996 (as modified and supplemented and in
effect from time to time, the "CREDIT AGREEMENT") between the Company, the
Subsidiaries of the Company identified on the signature pages thereof under the
caption "SUBSIDIARY GUARANTORS", the lenders named therein and
<PAGE>
Internationale Nederlanden (U.S.) Capital Corporation, as Agent, and evidences
Revolving Credit Loans made by the Lender thereunder. Terms used but not defined
in this Note have the respective meanings assigned to them in the Credit
Agreement.
The Credit Agreement provides for the acceleration of the
maturity of this Note upon the occurrence of certain events and for prepayments
of Loans upon the terms and conditions specified therein.
Except as permitted by Section 12.06(b) of the Credit Agreement,
this Note may not be assigned by the Lender to any other Person.
This Note shall be governed by, and construed in accordance with,
the law of the State of New York.
CORNELL CORRECTIONS, INC.
By
Title:
<PAGE>
SCHEDULE OF REVOLVING CREDIT LOANS
This Note evidences Revolving Credit Loans made, Continued or
Converted under the within-described Credit Agreement to the Company, on the
dates, in the principal amounts, of the Types, bearing interest at the rates and
having Interest Periods (if applicable) of the durations set forth below,
subject to the payments, Continuations, Conversions and prepayments of principal
set forth below:
Amount
Date Paid,
Made, Duration Prepaid,
Continued Principal Type of Continued
or Amount of Interest Interest or
CONVERTED OF LOAN LOAN RATE PERIOD CONVERTED
Unpaid
Principal Notation
AMOUNT MADE BY
<PAGE>
EXHIBIT A-2
[FORM OF TERM LOAN NOTE]
<PAGE>
EXHIBIT A-2
[Form of Term Loan Note]
PROMISSORY NOTE
$ , 1996
--------------------- --------------- ---
New York, New York
FOR VALUE RECEIVED, CORNELL CORRECTIONS, INC., a
Delaware corporation (the "COMPANY"), hereby promises to pay to (the "LENDER"),
for account of its respective Applicable Lending Offices provided for by the
Credit Agreement referred to below, at account number 600-07-116 (ABA No.
021000238) maintained by Internationale Nederlanden (U.S.) Capital Corporation
at Morgan Guaranty Trust Company of New York at 23 Wall Street, New York, New
York 10005, the principal sum of ________________ Dollars (or such lesser amount
as shall equal the aggregate unpaid principal amount of the Term Loans made by
the Lender to the Company under the Credit Agreement), in lawful money of the
United States of America and in immediately available funds, on the dates and in
the principal amounts provided in the Credit Agreement, and to pay interest on
the unpaid principal amount of each such Term Loan, at such office, in like
money and funds, for the period commencing on the date of such Term Loan until
such Term Loan shall be paid in full, at the rates per annum and on the dates
provided in the Credit Agreement.
The date, amount, Type, interest rate and duration
of Interest Period (if applicable) of each Term Loan made by the Lender to the
Company, and each payment made on account of the principal thereof, shall be
recorded by the Lender on its books and, prior to any transfer of this Note,
endorsed by the Lender on the schedule attached hereto or any continuation
thereof, PROVIDED that the failure of the Lender to make any such recordation or
endorsement shall not affect the obligations of the Company to make a payment
when due of any amount owing under the Credit Agreement or hereunder in respect
of the Term Loans made by the Lender.
This Note is one of the Term Loan Notes referred to
in the Credit Agreement dated as of July 3, 1996 (as modified and supplemented
and in effect from time to time, the "CREDIT AGREEMENT") between the Company,
the Subsidiaries of the Company identified on the signature pages thereof under
the caption
<PAGE>
"SUBSIDIARY GUARANTORS", the lenders named therein and Internationale
Nederlanden (U.S.) Capital Corporation, as Agent, and evidences Term Loans made
by the Lender thereunder. Terms used but not defined in this Note have the
respective meanings assigned to them in the Credit Agreement.
The Credit Agreement provides for the acceleration
of the maturity of this Note upon the occurrence of certain events and for
prepayments of Term Loans upon the terms and conditions specified therein.
Except as permitted by Section 12.06(b) of the
Credit Agreement, this Note may not be assigned by the Lender to any other
Person.
This Note shall be governed by, and construed in
accordance with, the law of the State of New York.
CORNELL CORRECTIONS, INC.
By
Title:
<PAGE>
SCHEDULE OF TERM LOANS
This Note evidences Term Loans made, Continued or Converted under
the within-described Credit Agreement to the Company, on the dates, in the
principal amounts, of the Types, bearing interest at the rates and having
Interest Periods (if applicable) of the durations set forth below, subject to
the payments, Continuations, Conversions and prepayments of principal set forth
below:
Amount
Date Paid,
Made, Duration Prepaid,
Continued Principal Type of Continued
or Amount of Interest Interest or
CONVERTED OF LOAN LOAN RATE PERIOD CONVERTED
Unpaid
Principal Notation
AMOUNT MADE BY
<PAGE>
EXHIBIT A-3
[FORM OF CAPEX LOAN NOTE]
<PAGE>
EXHIBIT A-3
[Form of CapEx Loan Note]
PROMISSORY NOTE
$ , 1996
--------------------- ------------ -----
New York, New York
FOR VALUE RECEIVED, CORNELL CORRECTIONS, INC., a
Delaware corporation (the "COMPANY"), hereby promises to pay to ________________
(the "LENDER"), for account of its respective Applicable Lending Offices
provided for by the Credit Agreement referred to below, at account number
600-07-116 (ABA No. 021000238) maintained by Internationale Nederlanden (U.S.)
Capital Corporation at Morgan Guaranty Trust Company of New York at 23 Wall
Street, New York, New York 10005, the principal sum of Dollars (or such lesser
amount as shall equal the aggregate unpaid principal amount of the CapEx Loans
made by the Lender to the Company under the Credit Agreement), in lawful money
of the United States of America and in immediately available funds, on the dates
and in the principal amounts provided in the Credit Agreement, and to pay
interest on the unpaid principal amount of each such CapEx Loan, at such office,
in like money and funds, for the period commencing on the date of such CapEx
Loan until such CapEx Loan shall be paid in full, at the rates per annum and on
the dates provided in the Credit Agreement.
The date, amount, Type, interest rate and duration
of Interest Period (if applicable) of each CapEx Loan made by the Lender to the
Company, and each payment made on account of the principal thereof, shall be
recorded by the Lender on its books and, prior to any transfer of this Note,
endorsed by the Lender on the schedule attached hereto or any continuation
thereof, PROVIDED that the failure of the Lender to make any such recordation or
endorsement shall not affect the obligations of the Company to make a payment
when due of any amount owing under the Credit Agreement or hereunder in respect
of the CapEx Loans made by the Lender.
This Note is one of the CapEx Loan Notes referred to in
the Credit Agreement dated as of July 3, 1996 (as modified and supplemented and
in effect from time to time, the "CREDIT AGREEMENT") between the Company, the
Subsidiaries of the Company identified on the signature pages thereof under the
caption "SUBSIDIARY GUARANTORS", the lenders named therein and Internationale
Nederlanden (U.S.) Capital Corporation, as Agent,
<PAGE>
and evidences CapEx Loans made by the Lender thereunder. Terms used but not
defined in this Note have the respective meanings assigned to them in the Credit
Agreement.
The Credit Agreement provides for the acceleration
of the maturity of this Note upon the occurrence of certain events and for
prepayments of CapEx Loans upon the terms and conditions specified therein.
Except as permitted by Section 12.06(b) of the
Credit Agreement, this Note may not be assigned by the Lender to any other
Person.
This Note shall be governed by, and construed in
accordance with, the law of the State of New York.
CORNELL CORRECTIONS, INC.
By
Title:
<PAGE>
SCHEDULE OF CAPEX LOANS
This Note evidences CapEx Loans made, Continued or Converted
under the within-described Credit Agreement to the Company, on the dates, in the
principal amounts, of the Types, bearing interest at the rates and having
Interest Periods (if applicable) of the durations set forth below, subject to
the payments, Continuations, Conversions and prepayments of principal set forth
below:
Amount
Date Paid,
Made, Duration Prepaid,
Continued Principal Type of Continued
or Amount of Interest Interest or
CONVERTED OF LOAN LOAN RATE PERIOD CONVERTED
Unpaid
Principal Notation
AMOUNT MADE BY
<PAGE>
EXHIBIT A-4
[FORM OF REPURCHASE LOAN NOTE]
<PAGE>
EXHIBIT A-4
[Form of Repuchase Loan Note]
PROMISSORY NOTE
$ , 1996
--------------------- ---------------- ----
New York, New York
FOR VALUE RECEIVED, CORNELL CORRECTIONS, INC., a
Delaware corporation (the "COMPANY"), hereby promises to pay to
_______________(the "LENDER"), for account of its respective Applicable Lending
Offices provided for by the Credit Agreement referred to below, at account
number 600-07-116 (ABA No. 021000238) maintained by Internationale Nederlanden
(U.S.) Capital Corporation at Morgan Guaranty Trust Company of New York at 23
Wall Street, New York, New York 10005, the principal sum of Dollars (or such
lesser amount as shall equal the aggregate unpaid principal amount of the
Repurchase Loans made by the Lender to the Company under the Credit Agreement),
in lawful money of the United States of America and in immediately available
funds, on the dates and in the principal amounts provided in the Credit
Agreement, and to pay interest on the unpaid principal amount of each such
Repurchase Loan, at such office, in like money and funds, for the period
commencing on the date of such Repurchase Loan until such Repurchase Loan shall
be paid in full, at the rates per annum, and on the dates provided in the Credit
Agreement.
The date, amount, Type, interest rate and duration
of Interest Period (if applicable) of each Repurchase Loan made by the Lender to
the Company, and each payment made on account of the principal thereof, shall be
recorded by the Lender on its books and, prior to any transfer of this Note,
endorsed by the Lender on the schedule attached hereto or any continuation
thereof, PROVIDED that the failure of the Lender to make any such recordation or
endorsement shall not affect the obligations of the Company to make a payment
when due of any amount owing under the Credit Agreement or hereunder in respect
of the Repurchase Loans made by the Lender.
This Note is one of the Repurchase Loan Notes
referred to in the Credit Agreement dated as of July 3, 1996 (as modified and
supplemented and in effect from time to time, the "CREDIT AGREEMENT") between
the Company, the Subsidiaries of the Company identified on the signature pages
thereof under the caption
<PAGE>
"SUBSIDIARY GUARANTORS", the lenders named therein and Internationale
Nederlanden (U.S.) Capital Corporation, as Agent, and evidences Repurchase Loans
made by the Lender thereunder.
Terms used but not defined in this Note have the
respective meanings assigned to them in the Credit Agreement.
The Credit Agreement provides for the acceleration
of the maturity of this Note upon the occurrence of certain events and for
prepayments of Repurchase Loans upon the terms and conditions specified therein.
Except as permitted by Section 12.06(b) of the
Credit Agreement, this Note may not be assigned by the Lender to any other
Person.
This Note shall be governed by, and construed in
accordance with, the law of the State of New York.
CORNELL CORRECTIONS, INC.
By
Title:
<PAGE>
SCHEDULE OF REPURCHASE LOANS
This Note evidences Repurchase Loans made, Continued or Converted
under the within-described Credit Agreement to the Company, on the dates, in the
principal amounts, of the Types, bearing interest at the rates and having
Interest Periods (if applicable) of the durations set forth below, subject to
the payments, Continuations, Conversions and prepayments of principal set forth
below:
Amount
Date Paid,
Made, Duration Prepaid,
Continued Principal Type of Continued
or Amount of Interest Interest or
CONVERTED OF LOAN LOAN RATE PERIOD CONVERTED
Unpaid
Principal Notation
AMOUNT MADE BY
<PAGE>
EXHIBIT B-1
[FORM OF SECURITY AGREEMENT]
<PAGE>
EXECUTION COPY
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of March 14, 1995 between CORNELL
COX, INC., a corporation duly organized and validly existing under the laws of
the State of Delaware (the "COMPANY"); each of the Subsidiaries of the Company
identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages
hereto (individually, a "SUBSIDIARY GUARANTOR" and, collectively, the
"SUBSIDIARY GUARANTORS" and, together with the Company, the "OBLIGORS"); and
INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, as agent for the lenders
or other financial institutions or entities party, as lenders, to the Credit
Agreement referred to below (in such capacity, together with its successors in
such capacity, the "AGENT").
The Company, the Subsidiary Guarantors, certain lenders and the
Agent are parties to a Credit Agreement dated as of March 14, 1995 (as modified
and supplemented and in effect from time to time, the "CREDIT AGREEMENT"),
providing, subject to the terms and conditions thereof, for the making of loans
by said lenders to the Company in an aggregate principal amount not exceeding
$15,000,000.
To induce said lenders to enter into the Credit Agreement and to
extend credit thereunder, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, each Obligor has
agreed to pledge and grant a security interest in the Collateral (as hereinafter
defined) as security for the Secured Obligations (as hereinafter defined).
Accordingly, the parties hereto agree as follows:
Section 0.1 DEFINITIONS. Terms defined in the Credit Agreement
are used herein as defined therein. In addition, as used herein:
"ACCOUNTS" shall have the meaning ascribed thereto in
Section 3(d) hereof.
"COLLATERAL" shall have the meaning ascribed thereto in
Section 3 hereof.
"COLLATERAL ACCOUNT" shall have the meaning ascribed
thereto in Section 4.1 hereof.
"COPYRIGHT COLLATERAL" shall mean all Copyrights, whether
now owned or hereafter acquired by any Obligor, including each
Copyright identified in Annex 2 hereto.
"COPYRIGHTS" shall mean all copyrights, copyright
registrations and applications for copyright registrations,
including, without limitation, all renewals and
<PAGE>
extensions thereof, the right to recover for all past, present
and future infringements thereof, and all other rights of any
kind whatsoever accruing thereunder or pertaining thereto.
"DOCUMENTS" shall have the meaning ascribed thereto in
Section 3(j) hereof.
"EQUIPMENT" shall have the meaning ascribed thereto in
Section 3(h) hereof.
"INSTRUMENTS" shall have the meaning ascribed thereto in
Section 3(e) hereof.
"INTELLECTUAL PROPERTY" shall mean all Copyright
Collateral, all Patent Collateral and all Trademark Collateral,
together with (a) all inventions, processes, production methods,
proprietary information, know-how and trade secrets; (b) all
licenses or user or other agreements granted to any Obligor with
respect to any of the foregoing, in each case whether now or
hereafter owned or used including, without limitation, the
licenses or other agreements with respect to the Copyright
Collateral, the Patent Collateral or the Trademark Collateral,
listed in Annex 5 hereto; (c) all information, customer lists,
identification of suppliers, data, plans, blueprints,
specifications, designs, drawings, recorded knowledge, surveys,
engineering reports, test reports, manuals, materials standards,
processing standards, performance standards, catalogs, computer
and automatic machinery software and programs; (d) all field
repair data, sales data and other information relating to sales
or service of products now or hereafter manufactured; (e) all
accounting information and all media in which or on which any
information or knowledge or data or records may be recorded or
stored and all computer programs used for the compilation or
printout of such information, knowledge, records or data; (f) all
licenses, consents, permits, variances, certifications and
approvals of governmental agencies now or hereafter held by any
Obligor; and (g) all causes of action, claims and warranties now
or hereafter owned or acquired by any Obligor in respect of any
of the items listed above.
"INVENTORY" shall have the meaning ascribed thereto in
Section 3(f) hereof.
"ISSUERS" shall mean, collectively, the respective
corporations identified beneath the names of the Obligors on
Annex 1 hereto under the caption "ISSUER".
"PATENT COLLATERAL" shall mean all Patents, whether now
owned or hereafter acquired by any Obligor, including each Patent
identified in Annex 3 hereto.
"PATENTS" shall mean all patents and patent applications,
including, without limitation, the inventions and improvements
described and claimed therein together with the reissues,
divisions, continuations, renewals, extensions and
continuations-in- part thereof, all income, royalties, damages
and payments now or hereafter due and/or payable under and with
respect thereto, including, without limitation, damages and
<PAGE>
payments for past or future infringements thereof, the right to
sue for past, present and future infringements thereof, and all
rights corresponding thereto throughout the world.
"PLEDGED STOCK" shall have the meaning ascribed thereto in
Section 3(a) hereof.
"SECURED OBLIGATIONS" shall mean, collectively, (a) the
principal of and interest on the Loans made by the Lenders to,
and the Note(s) held by each Lender of, the Company and all other
amounts from time to time owing to the Lenders or the Agent by
the Obligors under the Basic Documents, (b) all obligations of
the Subsidiary Guarantors under the Credit Agreement and the
other Basic Documents and (c) all obligations of the Obligors to
the Lenders and the Agent hereunder.
"STOCK COLLATERAL" shall mean, collectively, the
Collateral described in clauses (a) through (c) of Section 3
hereof and the proceeds of and to any such property and, to the
extent related to any such property or such proceeds, all books,
correspondence, credit files, records, invoices and other papers.
"TAX REFUND" shall mean the approximately $120,000 tax
refund due to Eclectic Communications, Inc. for the period from
December 20, 1993 to March 31, 1994.
"TRADEMARK COLLATERAL" shall mean all Trademarks, whether
now owned or hereafter acquired by any Obligor, including each
Trademark identified in Annex 4 hereto. Notwithstanding the
foregoing, the Trademark Collateral does not and shall not
include any Trademark which would be rendered invalid, abandoned,
void or unenforceable by reason of its being included as part of
the Trademark Collateral.
"TRADEMARKS" shall mean all trade names, trademarks and
service marks, logos, trademark and service mark registrations,
and applications for trademark and service mark registrations,
including, without limitation, all renewals of trademark and
service mark registrations, all rights corresponding thereto
throughout the world, the right to recover for all past, present
and future infringements thereof, all other rights of any kind
whatsoever accruing thereunder or pertaining thereto, together,
in each case, with the product lines and goodwill of the business
connected with the use of, and symbolized by, each such trade
name, trademark and service mark.
"UNIFORM COMMERCIAL CODE" shall mean the Uniform
Commercial Code as in effect from time to time in the State of
New York.
Section 0.2 REPRESENTATIONS AND WARRANTIES. Each Obligor
represents and warrants to the Lenders and the Agent that:
<PAGE>
0.2.0.1 Such Obligor is the sole beneficial owner of the
Collateral in which it purports to grant a security interest
pursuant to Section 3 hereof and no Lien exists or will exist
upon such Collateral at any time (and no right or option to
acquire the same exists in favor of any other Person), except for
the pledge and security interest in favor of the Agent for the
benefit of the Lenders created or provided for herein (which
pledge and security interest constitute a first priority
perfected pledge and security interest in and to all of such
Collateral (other than Intellectual Property registered or
otherwise located outside of the United States of America)) and
any other Liens permitted by Section 9.06 of the Credit
Agreement.
0.2.0.2 The Pledged Stock evidenced by the certificates
identified under the name of such Obligor in Annex 1 hereto is,
and all other Pledged Stock in which such Obligor shall hereafter
grant a security interest pursuant to Section 3 hereof will be,
duly authorized, validly existing, fully paid and non-assessable
and none of such Pledged Stock is or will be subject to any
contractual restriction, or any restriction under the charter or
by-laws of the respective Issuer of such Pledged Stock, upon the
transfer of such Pledged Stock (except for any such restriction
contained herein or in the Credit Agreement).
0.2.0.3 The Pledged Stock evidenced by the certificates
identified under the name of such Obligor in Annex 1 hereto
constitutes all of the issued and outstanding shares of capital
stock of any class of the Issuers beneficially owned by such
Obligor on the date hereof (whether or not registered in the name
of such Obligor) and said Annex 1 correctly identifies, as at the
date hereof, the respective Issuers of such Pledged Stock, the
respective class and par value of the 5 shares comprising such
Pledged Stock and the respective number of shares (and registered
owners thereof) evidenced by each such certificate.
0.2.0.4 Annex 2, 3 and 4 hereto set forth under the name
of such Obligor a complete and correct list of all Copyrights,
Parents and Trademarks owned by such Obligor on the date hereof;
except pursuant to licenses and other user agreements entered
into by such Obligor in the ordinary course of business, which
are listed in Annex 5 hereto, such Obligor owns and possesses the
right to use, and has done nothing to authorize or enable any
other Person to use, any Copyright, Patent or Trademark listed in
said Annex 2, 3 and 4, and all registrations listed in said Annex
2, 3 and 4 are valid and in full force and effect; except as may
be set forth in said Annex 5, such Obligor owns and possesses the
right to use all Copyrights, Patents and Trademarks.
0.2.0.5 Annex 5 hereto sets forth a complete and correct
list of all licenses and other user agreements included in the
Intellectual Property on the date hereof.
<PAGE>
0.2.0.6 To such Obligor's knowledge, (i) except as set
forth in Annex 5 hereto, there is no violation by others of any
right of such Obligor with respect to any Copyright, Patent or
Trademark listed in Annex 2, 3 and 4 hereto under the name of
such Obligor and (ii) such Obligor is not infringing in any
respect upon any Copyright, Patent or Trademark of any other
Person; and no proceedings have been instituted or are pending
against such Obligor or, to such Obligor's knowledge, threatened,
and no claim against such Obligor has been received by such
Obligor, alleging any such violation, except as may be set forth
in said Annex 5.
0.2.0.7 To such Obligor's knowledge, such Obligor does not
own any Trademarks registered in the United States of America to
which the last sentence of the definition of Trademark Collateral
applies.
0.2.0.8 Any goods now or hereafter produced by such
Obligor or any of its Subsidiaries included in the Collateral
have been and will be produced in compliance with the
requirements of the Fair Labor Standards Act, as amended.
Section 0.3 COLLATERAL. As collateral security for the prompt
payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the Secured Obligations, each Obligor hereby pledges and grants to
the Agent, for the benefit of the Lenders as hereinafter provided, a security
interest in all of such Obligor's right, title and interest in the following
property (other than the Tax Refund), whether now owned by such Obligor or
hereafter acquired and whether now existing or hereafter coming into existence
(all being collectively referred to herein as "Collateral"):
0.3.0.1 the shares of common stock of the Issuers
evidenced by the certificates identified in Annex 1 hereto under
the name of such Obligor and all other shares of capital stock of
whatever class of the Issuers, now or hereafter owned by such
Obligor, in each case together with the certificates evidencing
the same (collectively, the "PLEDGED STOCK");
0.3.0.2 all shares, securities, moneys or property
representing a dividend on any of the Pledged Stock, or
representing a distribution or return of capital upon or in
respect of the Pledged Stock, or resulting from a split-up,
revision, reclassification or other like change of the Pledged
Stock or otherwise received in exchange therefor, and any
subscription warrants, rights or options issued to the holders
of, or otherwise in respect of, the Pledged Stock;
0.3.0.3 without affecting the obligations of such Obligor
under any provision prohibiting such action hereunder or under
the Credit Agreement, in the event of any consolidation or merger
in which an Issuer is not the surviving corporation, all shares
of each class of the capital stock of the successor corporation
formed by or resulting from such consolidation or merger (the
Pledged Stock, together with all other certificates, shares,
securities, properties or moneys as may from time to time be
<PAGE>
pledged hereunder pursuant to clause (a) or (b) above and this
clause (c) being herein collectively called the "STOCK
COLLATERAL");
0.3.0.4 all accounts and general intangibles (each as
defined in the Uniform Commercial Code) of such Obligor
constituting any right to the payment of money, including (but
not limited to) all moneys due and to become due to such Obligor
in respect of any loans or advances or for Inventory or Equipment
or other goods sold or leased or for services rendered, all
moneys due and to become due to such Obligor under any guarantee
(including a letter of credit) of the purchase price of Inventory
or Equipment sold by such Obligor and all tax refunds (such
accounts, general intangibles and moneys due and to become due
being herein called collectively "ACCOUNTS");
0.3.0.5 all instruments, chattel paper or letters of
credit (each as defined in the Uniform Commercial Code) of such
Obligor evidencing, representing, arising from or existing in
respect of, relating to, securing or otherwise supporting the
payment of, any of the Accounts, including (but not limited to)
promissory notes, drafts, bills of exchange and trade acceptances
(herein collectively called "INSTRUMENTS");
0.3.0.6 all inventory (as defined in the Uniform
Commercial Code) of such Obligor, including all goods obtained by
such Obligor in exchange for such inventory, and any products
made or processed from such inventory including all substances,
if any, commingled therewith or added thereto (herein
collectively called "INVENTORY");
0.3.0.7 all other accounts or general intangibles of such
Obligor not constituting Accounts;
0.3.0.8 all equipment (as defined in the Uniform
Commercial Code) of such Obligor (herein collectively called
"EQUIPMENT");
0.3.0.9 each contract and other agreement of such Obligor
relating to the sale or other disposition of Inventory or
Equipment;
0.3.0.10 all documents of title (as defined in the Uniform
Commercial Code) or other receipts of such Obligor covering,
evidencing or representing Inventory or Equipment (herein
collectively called "DOCUMENTS");
0.3.0.11 all rights, claims and benefits of such Obligor
against any Person arising out of, relating to or in connection
with Inventory or Equipment purchased by such Obligor, including,
without limitation, any such rights, claims or benefits against
any Person storing or transporting such Inventory or Equipment;
0.3.0.12 the balance from time to time in the Collateral
Account; and
<PAGE>
0.3.0.13 all other tangible and intangible property of
such Obligor, including, without limitation, all proceeds,
products, offspring, accessions, rents, profits, income,
benefits, substitutions and replacements of and to any of the
property of such Obligors described in the preceding clauses of
this Section 3 (including, without limitation, any proceeds of
insurance thereon) and, to the extent related to any property
described in said clauses or such proceeds, products and
accessions, all books, correspondence, credit files, records,
invoices and other papers, including without limitation all
tapes, cards, computer runs and other papers and documents in the
possession or under the control of such Obligor or any computer
bureau or service company from time to time acting for such
Obligor.
Section 0.4 CASH PROCEEDS OF COLLATERAL.
0.4.1 COLLATERAL ACCOUNT. The Agent shall establish with a bank
in New York City a cash collateral account (the "COLLATERAL ACCOUNT") in the
name and under the control of the Agent into which there shall be deposited from
time to time the cash proceeds of any of the Collateral (including proceeds of
insurance thereon) required to be delivered to the Agent pursuant Section 4.2
hereof during the continuance of any Default. The balance from time to time in
the Collateral Account shall constitute part of the Collateral hereunder and
shall not constitute payment of the Secured Obligations until applied as
hereinafter provided. During the continuance of an Event of Default, the Agent
may (and, if instructed by the Lenders as specified in Section 11.03 of the
Credit Agreement, shall) in its (or their) discretion apply or cause to be
applied (subject to collection) the balance from time to time outstanding to the
credit of the Collateral Account to the payment of the Secured Obligations in
the manner specified in Section 5.9 hereof. The balance from time to time in the
Collateral Account shall be subject to withdrawal only as provided herein.
0.4.2 PROCEEDS OF ACCOUNTS. Each Obligor shall instruct all
account debtors and other Persons obligated in respect of all Accounts to make
all payments in respect of the Accounts to one or more other banks in the United
States of America under arrangements, in form and substance satisfactory to the
Agent pursuant to which such Obligor shall have irrevocably instructed such
other bank (and such other bank shall have agreed) to remit, upon request of the
Agent during the continuance of any Default, all proceeds of such payments
directly to the Agent for deposit into the Collateral Account. All payments made
to the Agent, as provided in the preceding sentence, shall be immediately
deposited in the Collateral Account. In addition to the foregoing, each Obligor
agrees that if the proceeds of any Collateral hereunder (including the payments
made in respect of Accounts) shall be received by it at any time after such
request by the Agent, such Obligor shall as promptly as possible deposit such
proceeds into the Collateral Account. Until so deposited, all such proceeds
shall be held in trust by such Obligor for and as the property of the Agent and
shall not be commingled with any other funds or property of such Obligor.
0.4.3 INVESTMENT OF BALANCE IN COLLATERAL ACCOUNT. Amounts on
deposit in the Collateral Account shall be invested from time to time in such
Permitted Investments as the respective Obligor through the Company (or, after
the occurrence and during the continuance of a Default, the
<PAGE>
Agent) shall determine, which Permitted Investments shall be held in the name
and be under the control of the Agent, PROVIDED that (i) at any time after the
occurrence and during the continuance of an Event of Default, the Agent may
(and, if instructed by the Lenders as specified in Section 11.03 of the Credit
Agreement, shall) in its (or their) discretion at any time and from time to time
elect to liquidate any such Permitted Investments and to apply or cause to be
applied the proceeds thereof to the payment of the Secured Obligations in the
manner specified in Section 5.9 hereof and (ii) if requested by the respective
Obligor through the Company, such Permitted Investments may be held in the name
and under the control of one or more of the Lenders.
Section 0.5 FURTHER ASSURANCES; REMEDIES. In furtherance of the
grant of the pledge and security interest pursuant to Section 3 hereof, the
Obligors hereby jointly and severally agree with each Lender and the Agent as
follows:
0.5.1 DELIVERY AND OTHER PERFECTION. Each Obligor shall:
0.5.1.1 if any of the above-described shares, securities,
moneys or property required to be pledged by such Obligor under
clauses (a), (b) and (c) of Section 3 hereof are received by such
Obligor, forthwith either (x) transfer and deliver to the Agent
such shares or securities so received by such Obligor (together
with the certificates for any such shares and securities duly
endorsed in blank or accompanied by undated stock powers duly
executed in blank), all of which thereafter shall be held by the
Agent, pursuant to the terms of this Agreement, as part of the
Collateral or (y) take such other action as the Agent shall deem
necessary or appropriate to duly record the Lien created
hereunder in such shares, securities, moneys or property in said
clauses (a), (b) and (c);
0.5.1.2 deliver and pledge to the Agent any and all
Instruments, endorsed and/or accompanied by such instruments of
assignment and transfer in such form and substance as the Agent
may request; PROVIDED, that so long as no Default shall have
occurred and be continuing, such Obligor may retain for
collection in the ordinary course any Instruments received by
such Obligor in the ordinary course of business and the Agent
shall, promptly upon request of such Obligor through the Company,
make appropriate arrangements for making any other Instrument
pledged by such Obligor available to such Obligor for purposes of
presentation, collection or renewal (any such arrangement to be
effected, to the extent deemed reasonably appropriate by the
Agent, against trust receipt or like document);
0.5.1.3 give, execute, deliver, file and/or record any
financing statement, notice, instrument, document, agreement or
other papers that may be necessary or reasonably desirable (in
the judgment of the Agent) to create, preserve, perfect or
validate the security interest granted pursuant hereto or to
enable the Agent to exercise and enforce its rights hereunder
with respect to such pledge and security interest, including,
without limitation, after the occurrence of an Event of Default,
<PAGE>
causing any or all of the Stock Collateral to be transferred of
record into the name of the Agent or its nominee (and the Agent
agrees that if any Stock Collateral is transferred into its name
or the name of its nominee, the Agent will thereafter promptly
give to the respective Obligor copies of any notices and
communications received by it with respect to the Stock
Collateral pledged by such Obligor hereunder), PROVIDED that
notices to account debtors in respect of any Accounts or
Instruments shall be subject to the provisions of clause (i)
below and Section 4.2 above;
0.5.1.4 without limiting the obligations of such Obligor
under Section 5.4(c) hereof, upon the acquisition after the date
hereof by such Obligor of any Equipment covered by a certificate
of title or ownership, cause the Agent to be listed as the
lienholder on such certificate of title and within 120 days of
the acquisition thereof deliver evidence of the same to the
Agent;
0.5.1.5 keep full and accurate books and records relating
to the Collateral, and stamp or otherwise mark such books and
records in such manner as the Agent may reasonably require in
order to reflect the security interests granted by this
Agreement;
0.5.1.6 furnish to the Agent from time to time (but,
unless a Default shall have occurred and be continuing, no more
frequently than annually) statements and schedules further
identifying and describing the Copyright Collateral, the Patent
Collateral and the Trademark Collateral and such other reports in
connection with the Copyright Collateral, the Patent Collateral
and the Trademark Collateral, as the Agent may reasonably
request, all in reasonable detail;
0.5.1.7 promptly upon request of the Agent, following
receipt by the Agent of any statements, schedules or reports
pursuant to clause (f) above, modify this Agreement by amending
Annex 2, 3 and/or 4 hereto to include any Copyright, Patent or
Trademark which becomes part of the Collateral under this
Agreement;
0.5.1.8 permit representatives of the Agent, upon
reasonable notice, at any time during normal business hours to
inspect and make abstracts from its books and records pertaining
to the Collateral, and forward copies of any notices or
communications received by such Obligor with respect to the
Collateral, all in such manner as the Agent may reasonably
require;
0.5.1.9 upon the occurrence and during the continuance of
any Default, upon request of the Agent, promptly notify (and such
Obligor hereby authorizes the Agent so to notify) each account
debtor in respect of any Accounts or Instruments that such
Collateral has been assigned to the Agent hereunder, and that any
payments due or to become due in respect of such Collateral are
to be made directly to the Agent.
<PAGE>
0.5.2 OTHER FINANCING STATEMENTS AND LIENS. Without the prior
written consent of the Agent (granted with the authorization of the Lenders as
specified in Section 11.10 of the Credit Agreement), no Obligor shall file or
suffer to be on file, or authorize or permit to be filed or to be on file, in
any jurisdiction, any financing statement or like instrument with respect to the
Collateral in which the Agent is not named as the sole secured party for the
benefit of the Lenders.
0.5.3 PRESERVATION OF RIGHTS. The Agent shall not be required to
take steps necessary to preserve any rights against prior parties to any of the
Collateral.
0.5.4 SPECIAL PROVISIONS RELATING TO CERTAIN COLLATERAL.
0.5.4.1 STOCK COLLATERAL.
0.5.4.1.0.0.1 The Obligors will cause the Stock Collateral to
constitute at all times 100% of the total number of shares of each class of
capital stock of each Issuer then outstanding.
0.5.4.1.0.0.2 So long as no Event of Default shall have occurred
and be continuing, the Obligors shall have the right to exercise all voting,
consensual and other powers of ownership pertaining to the Stock Collateral for
all purposes not inconsistent with the terms of this Agreement, the Credit
Agreement, the Notes or any other instrument or agreement referred to herein or
therein, PROVIDED that the Obligors jointly and severally agree that they will
not vote the Stock Collateral in any manner that is inconsistent with the terms
of this Agreement, the Credit Agreement, the Notes or any such other instrument
or agreement; and the Agent shall execute and deliver to the Obligors or cause
to be executed and delivered to the Obligors all such proxies, powers of
attorney, dividend and other orders, and all such instruments, without recourse,
as the Obligors may reasonably request for the purpose of enabling the Obligors
to exercise the rights and powers which they are entitled to exercise pursuant
to this Section 5.4(a)(2).
0.5.4.1.0.0.3 Unless and until an Event of Default has occurred
and is continuing, the Obligors shall be entitled to receive and retain any
dividends on the Stock Collateral paid in cash out of earned surplus.
0.5.4.1.0.0.4 If any Event of Default shall have occurred, then
so long as such Event of Default shall continue, and whether or not the Agent or
any Lender exercises any available right to declare any Secured Obligation due
and payable or seeks or pursues any other relief or remedy available to it under
applicable law or under this Agreement, the Credit Agreement, the Notes or any
other agreement relating to such Secured Obligation, all dividends and other
distributions on the Stock Collateral shall be paid directly to the Agent and
retained by it in the Collateral Account as part of the Stock Collateral,
subject to the terms of this Agreement, and, if the Agent shall so request in
writing, the Obligors jointly and severally agree to execute and deliver to the
Agent appropriate additional dividend, distribution and other orders and
documents to that end, PROVIDED that if such Event of Default is cured, any such
dividend or distribution theretofore paid to the Agent shall, upon
<PAGE>
request of the Obligors (except to the extent theretofore applied to the Secured
Obligations), be returned by the Agent to the Obligors.
0.5.4.2 INTELLECTUAL PROPERTY.
0.5.4.2.0.0.1 For the purpose of enabling the Agent to exercise
rights and remedies under Section 5.5 hereof at such time as the Agent shall be
lawfully entitled to exercise such rights and remedies, and for no other
purpose, each Obligor hereby grants to the Agent, to the extent assignable, an
irrevocable, non-exclusive license (exercisable without payment of royalty or
other compensation to such Obligor) to use, assign, license or sublicense any of
the Intellectual Property now owned or hereafter acquired by such Obligor,
wherever the same may be located, including in such license reasonable access to
all media in which any of the licensed items may be recorded or stored and to
all computer programs used for the compilation or printout thereof.
0.5.4.2.0.0.2 Notwithstanding anything contained herein to the
contrary, but subject to the provisions of Section 9.05 of the Credit Agreement
which limit the right of the Obligors to dispose of their property, so long as
no Event of Default shall have occurred and be continuing, the Obligors will be
permitted to exploit, use, enjoy, protect, license, sublicense, assign, sell,
dispose of or take other actions with respect to the Intellectual Property in
the ordinary course of the business of the Obligors. In furtherance of the
foregoing, unless an Event of Default shall have occurred and be continuing the
Agent shall from time to time, upon the request of the respective Obligor
through the Company, execute and deliver any instruments, certificates or other
documents, in the form so requested, which such Obligor through the Company
shall have certified are appropriate (in their judgment) to allow them to take
any action permitted above (including relinquishment of the license provided
pursuant to clause (1) immediately above as to any specific Intellectual
Property). Further, upon the payment in full of all of the Secured Obligations
and cancellation or termination of the Commitments or earlier expiration of this
Agreement or release of the Collateral, the license granted pursuant to clause
(1) immediately above shall automatically be deemed to have been granted back to
the Obligors. The exercise of rights and remedies under Section 5.5 hereof by
the Agent shall not terminate the rights of the holders of any licenses or
sublicenses theretofore granted by the Obligors in accordance with the first
sentence of this clause (2).
0.5.4.3 FEDERAL GOVERNMENT CONTRACTS. With respect to each
Correctional and Detention Facility Contract entered into by any Obligor after
the Closing Date with any agency or department of the United States of America,
if such Correctional and Detention Facility Contract does not prohibit an
assignment thereof in accordance with the provisions of the Assignment of Claims
Act of 1940, such Obligor shall deliver to the Agent a duly executed notice of
assignment under the Assignment of Claims Act of 1940, together with the
appropriate acknowledgements by the contracting and the disbursing officers.
0.5.5 EVENTS OF DEFAULT, ETC. During the period during which an
Event of Default shall have occurred and be continuing:
<PAGE>
0.5.5.1 each Obligor shall, at the request of the Agent,
assemble the Collateral owned by it at such place or places,
reasonably convenient to both the Agent and such Obligor,
designated in its request;
0.5.5.2 the Agent may make any reasonable compromise or
settlement deemed desirable with respect to any of the Collateral
and may extend the time of payment, arrange for payment in
installments, or otherwise modify the terms of, any of the
Collateral;
0.5.5.3 the Agent shall have all of the rights and
remedies with respect to the Collateral of a secured party under
the Uniform Commercial Code (whether or not said Code is in
effect in the jurisdiction where the rights and remedies are
asserted) and such additional rights and remedies to which a
secured party is entitled under the laws in effect in any
jurisdiction where any rights and remedies hereunder maybe
asserted, including, without limitation, the right, to the
maximum extent permitted by law, to exercise all voting,
consensual and other powers of ownership pertaining to the
Collateral as if the Agent were the sole and absolute owner
thereof (and each Obligor agrees to take all such action as may
be appropriate to give effect to such right);
0.5.5.4 the Agent in its discretion may, in its name or in
the name of the Obligors or otherwise, demand, sue for, collect
or receive any money or property at any time payable or
receivable on account of or in exchange for any of the
Collateral, but shall be under no obligation to do so; and
0.5.5.5 the Agent may, upon ten Business days' prior
written notice to the Obligors of the time and place, with
respect to the Collateral or any part thereof which shall then be
or shall thereafter come into the possession, custody or control
of the Agent, the Lenders or any of their respective agents,
sell, lease, assign or otherwise dispose of all or any part of
such Collateral, at such place or places as the Agent deems best,
and for cash or for credit or for future delivery (without
thereby assuming any credit risk), at public or private sale,
without demand of performance or notice of intention to effect
any such disposition or of the time or place thereof (except such
notice as is required above or by applicable statute and cannot
be waived), and the Agent or any Lender or anyone else may be the
purchaser, lessee, assignee or recipient of any or all of the
Collateral so disposed of at any public sale (or, to the extent
permitted by law, at any private sale) and thereafter hold the
same absolutely, free from any claim or right of whatsoever kind,
including any right or equity of redemption (statutory or
otherwise), of the Obligors, any such demand, notice and right or
equity being hereby expressly waived and released. In the event
of any sale, assignment, or other disposition of any of the
Trademark Collateral, the goodwill connected with and symbolized
by the Trademark Collateral subject to such disposition shall be
included, and the Obligors shall supply to the Agent or its
<PAGE>
designee, for inclusion in such sale, assignment or other
disposition, all Intellectual Property relating to such Trademark
Collateral. The Agent may, without notice or publication, adjourn
any public or private sale or cause the same to be adjourned from
time to time (i) by announcement at the time and place fixed for
the sale and (ii) if such sale is to adjourned to a specific time
and place, by notice to the Obligors of such time and place, and
such sale may be made at any time or place to which the sale may
be so adjourned.
The proceeds of each collection, sale or other disposition under this Section
5.5, including by virtue of the exercise of the license granted to the Agent in
Section 5.4(b) hereof, shall be applied in accordance with Section 5.9 hereof.
The Obligors recognize that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, and applicable state
securities laws, the Agent may be compelled, with respect to any sale of all or
any part of the Collateral, to limit purchasers to those who will agree, among
other things, to acquire the Collateral for their own account, for investment
and not with a view to the distribution or resale thereof. The Obligors
acknowledge that any such private sales may be at prices and on terms less
favorable to the Agent than those obtainable through a public sale without such
restrictions, and, notwithstanding such circumstances, agree that any such
private sale shall be deemed to have been made in a commercially reasonable
manner and that the Agent shall have no obligation to engage in public sales and
no obligation to delay the sale of any Collateral for the period of time
necessary to permit the respective Issuer or issuer thereof to register it for
public sale.
0.5.6 DEFICIENCY. If the proceeds of sale, collection or other
realization of or upon the Collateral pursuant to Section 5.5 hereof are
insufficient to cover the costs and expenses of such realization and the payment
in full of the Secured Obligations, the Obligors shall remain liable for any
deficiency.
0.5.7 REMOVALS, ETC. Without at least 10 days' prior written
notice to the Agent, no Obligor shall (i) maintain any of its books and records
with respect to the Collateral at any office or maintain its principal place of
business at any place, or permit any Inventory or Equipment to be located
anywhere, other than at one of the locations identified in Annex 6 hereto under
its name or in transit from one of such locations to another or (ii) change its
name, or the name under which it does business, from the name shown on the
signature pages hereto.
0.5.8 PRIVATE SALE. The Agent and the Lenders shall incur no
liability as a result of the sale of the Collateral, or any part thereof, at any
private sale pursuant to Section 5.5 hereof conducted in a commercially
reasonable manner. Each Obligor hereby waives any claims against the Agent or
any Lender arising by reason of the fact that the price at which the Collateral
may have been sold at such a private sale was less than the price which might
have been obtained at a public sale or was less than the aggregate amount of the
Secured Obligations, even if the Agent accepts the first offer received and does
not offer the Collateral to more than one offeree.
<PAGE>
0.5.9 APPLICATION OF PROCEEDS. Except as otherwise herein
expressly provided and except as provided below in this Section 5.9, the
proceeds of any collection, sale or other realization of all or any part of the
Collateral pursuant hereto, and any other cash at the time held by the Agent
under Section 4 hereof or this Section 5, shall be applied by the Agent:
FIRST, to the payment of the costs and expenses of such
collection, sale or other realization, including reasonable
out-of-pocket costs and expenses of the Agent and the reasonable
fees and expenses of its agents and counsel, and all expenses
incurred and advances made by the Agent in connection therewith;
NEXT, to the payment in full of the Secured Obligations,
in each case equally and ratably in accordance with the
respective amounts thereof then due and owing or as the Lenders
holding the same may otherwise agree; and
FINALLY, after the payment in full of the Secured
Obligations, to the payment to the respective Obligor, or their
respective successors or assigns, or as a court of competent
jurisdiction may direct, of any surplus then remaining.
As used in this Section 5, "PROCEEDS" of Collateral shall mean cash, securities
and other property realized in respect of, and distributions in kind of,
Collateral, including any thereof received under any reorganization, liquidation
or adjustment of Debt of the Obligors or any issuer of or obligor on any of the
Collateral.
0.5.10 ATTORNEY-IN-FACT. Without limiting any rights or powers
granted by this Agreement to the Agent while no Event of Default has occurred
and is continuing, upon the occurrence and during the continuance of any Event
of Default the Agent is hereby appointed the attorney-in-fact of each Obligor
for the purpose of carrying out the provisions of this Section 5 and taking any
action and executing any instruments which the Agent may deem necessary or
advisable to accomplish the purposes hereof, which appointment as
attorney-in-fact is irrevocable and coupled with an interest. Without limiting
the generality of the foregoing, so long as the Agent shall be entitled under
this Section 5 to make collections in respect of the Collateral, the Agent shall
have the right and power to receive, endorse and collect all checks made payable
to the order of any Obligor representing any dividend, payment or other
distribution in respect of the Collateral or any part thereof and to give full
discharge for the same.
0.5.11 PERFECTION. Prior to or concurrently with the execution
and delivery of this Agreement, each Obligor shall (i) file such financing
statements and other documents in such offices as the Agent may request to
perfect the security interests granted by Section 3 of this Agreement and (ii)
deliver to the Agent all certificates identified in Annex 1 hereto, accompanied
by undated stock powers duly executed in blank.
0.5.12 TERMINATION. When all Secured Obligations shall have been
paid in full and the Commitments of the Lenders under the Credit Agreement and
all Letter of Credit Liabilities shall
<PAGE>
have expired or been terminated, this Agreement shall terminate, and the Agent
shall forthwith cause to be assigned, transferred and delivered, against receipt
but without any recourse, warranty or representation whatsoever, any remaining
Collateral and money received in respect thereof, to or on the order of the
respective Obligor and to be released and canceled all licenses and rights
referred to in Section 5.4(b) or Section 5.4(c) hereof. The Agent shall return
to the Company the certificates representing the Pledged Stock held by it and
shall also execute and deliver to the respective Obligor upon such termination
such Uniform Commercial Code termination statements and such other documentation
as shall be reasonably requested by the respective Obligor to effect the
termination and release of the Liens on the Collateral.
0.5.13 EXPENSES. The Obligors jointly and severally agree to pay
to the Agent all out-of-pocket expenses (including reasonable expenses for legal
services of every kind) of, or incident to, the enforcement of any of the
provisions of this Section 5, or performance by the Agent of any obligations of
the Obligors in respect of the Collateral which the Obligors have failed or
refused to perform, or any actual or attempted sale, or any exchange,
enforcement, collection, compromise or settlement in respect of any of the
Collateral, and for the care of the Collateral and defending or asserting rights
and claims of the Agent in respect thereof, by litigation or otherwise,
including expenses of insurance, and all such expenses shall be Secured
Obligations to the Agent secured under Section 3 hereof.
0.5.14 FURTHER ASSURANCES. Each Obligor agrees that, from time to
time upon the written request of the Agent, such Obligor will execute and
deliver such further documents and do such other acts and things as the Agent
may reasonably request in order fully to effect the purposes of this Agreement.
Section 0.6 MISCELLANEOUS.
0.6.1 NO WAIVER. No failure on the part of the Agent or any of
its agents to exercise, and no course of dealing with respect to, and no delay
in exercising, any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise by the Agent or any of its
agents of any right, power or remedy hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies herein are cumulative and are not exclusive of any remedies provided by
law.
0.6.2 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York.
0.6.3 NOTICES. All notices, requests, consents and demands
hereunder shall be in writing and telexed, telecopied or delivered to the
intended recipient at its "Address for Notices" specified pursuant to Section
12.02 of the Credit Agreement and shall be deemed to have been given at the
times specified in said Section 12.02.
<PAGE>
0.6.4 WAIVERS, ETC. The terms of this Agreement may be waived,
altered or amended only by an instrument in writing duly executed by each
Obligor and the Agent (with the consent of the Lenders as specified in Section
11.10 of the Credit Agreement). Any such amendment or waiver shall be binding
upon the Agent and each Lender, each holder of any of the Secured Obligations
and each Obligor.
0.6.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of each
Obligor, the Agent, the Lenders and each holder of any of the Secured
Obligations (PROVIDED, HOWEVER, that no Obligor shall assign or transfer its
rights hereunder without the prior written consent of the Agent).
0.6.6 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
0.6.7 AGENTS. The Agent may employ agents and attorneys-in-fact
in connection herewith and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it in good faith.
0.6.8 SEVERABILITY. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Agent and the
Lenders in order to carry out the intentions of the parties hereto as nearly as
may be possible and (ii) the invalidity or unenforceability of any provision
hereof in any jurisdiction shall not affect the validity or enforceability of
such provision in any other jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed and delivered as of the day and year first above
written.
CORNELL COX, INC.
By
Title:
<PAGE>
SUBSIDIARY GUARANTORS
CORNELL COX MANAGEMENT, INC.
By _________________________
Title:
CORNELL COX CONSULTING, INC.
By _________________________
Title:
CORNELL COX MANAGEMENT
RHODE ISLAND, INC.
By __________________________
Title:
CORNELL COX GROUP, L.P.
By __________________________
Title:
CORNELL COX MANAGEMENT
FLORIDA, INC.
By __________________________
Title:
<PAGE>
CORNELL COX MANAGEMENT
TEXAS, INC.
By __________________________
Title:
ECLECTIC COMMUNICATIONS, INC.
By ___________________________
Title:
INTERNATIONAL SELF-HELP
SERVICES, INC.
By ___________________________
Title:
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION, as Agent
By ___________________________
Title:
<PAGE>
ANNEX 1
PLEDGED STOCK
[See Section 2(b) and (c).]
[Complete for each Obligor:]
[NAME OF OBLIGOR]
Certificate Registered
ISSUER NOS. OWNER NUMBER OF SHARES
<PAGE>
ANNEX 2
LIST OF COPYRIGHTS, COPYRIGHT REGISTRATIONS AND
APPLICATIONS FOR COPYRIGHT REGISTRATIONS
[See Section 2(d).]
[Complete for each Obligor:]
[NAME OF OBLIGOR]
TITLE DATE FILED REGISTRATION NO. EFFECTIVE DATE
<PAGE>
ANNEX 3
LIST OF PATENTS AND PATENT APPLICATIONS
[See Section 2(d).]
[Complete for each Obligor:]
[NAME OF OBLIGOR]
FILE PATENT COUNTRY REGISTRATION NO. DATE
<PAGE>
ANNEX 4
LIST OF TRADE NAMES, TRADEMARKS, SERVICES MARKS,
TRADEMARK AND SERVICE MARK REGISTRATIONS AND
APPLICATIONS FOR TRADEMARK AND SERVICE MARK REGISTRATIONS
[See Section 2(d).]
U.S. TRADEMARKS
[Complete for each Obligor:]
[NAME OF OBLIGOR]
Application (A)
Registration (R) Registration
MARK OR SERIES NO. (5) OR FILING DATE
- --------------------------------------------------------------------------------
<PAGE>
FOREIGN TRADEMARKS
[Complete for each Obligor:]
[NAME OF OBLIGOR]
Application (A) Registration or
MARK REGISTRATION (R) COUNTRY FILING DATE (F)
<PAGE>
ANNEX 5
LIST OF CONTRACTS, LICENSES AND OTHER AGREEMENTS
[See Section 2(d), (e) and (f).]
[Complete for each Obligor:]
[NAME OF OBLIGOR]
<PAGE>
ANNEX 6
LIST OF LOCATIONS
[See Section 5.7.]
[Complete for each Obligor:]
[NAME OF OBLIGOR]
<PAGE>
EXHIBIT B-2
[FORM OF SECURITY AGREEMENT AMENDMENT]
<PAGE>
EXHIBIT B-2
EXECUTION COPY
AMENDMENT NO. 2
AMENDMENT NO. 2, dated as of July 3, 1996, between CORNELL
CORRECTIONS, INC., a corporation duly organized and validly existing under the
laws of the State of Delaware (the "COMPANY"); each of the Subsidiaries of the
Company identified under the caption "SUBSIDIARY GUARANTORS" on the signature
pages hereto (individually, a "SUBSIDIARY GUARANTOR" and, collectively, the
"SUBSIDIARY GUARANTORS" and, together with the Company, the "OBLIGORS"); and
INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, as agent for the lenders
or other financial institutions or entities party, as lenders, to the Credit
Agreement referred to below (in such capacity, together with its successors in
such capacity, the "AGENT").
The Obligors and the Agent are parties to an Amended and
Restated Credit Agreement, dated as of July 3, 1996 (the "AMENDED AND RESTATED
CREDIT AGREEMENT"). The Obligors and the Agent wish to amend the Security
Agreement referred to in the Amended and Restated Credit Agreement in certain
respects and, accordingly, agree as follows:
Section 1. DEFINITIONS. Except as otherwise defined in this
Amendment, terms defined in the Credit Agreement are used herein as defined
therein.
Section 2. AMENDMENTS. Subject to the satisfaction of the
conditions precedent specified in Section 3 below, but effective as of the date
hereof the Security Agreement shall be amended as follows:
a. AMOUNT OF CREDIT AGREEMENT. The second paragraph of the
Security Agreement is amended by replacing the reference to "15,000,000"
with reference to "35,000,000."
b. NAME CHANGE. The Company has changed its name from Cornell
Cox, Inc. to Cornell Corrections, Inc. and each reference in the
Security Agreement to Cornell Cox, Inc. shall be deemed to be a
reference to Cornell Corrections, Inc.
c. ANNEX 1. Annex 1 to the Security Agreement shall be amended in
its entirety to read as Annex 1 hereto.
d. AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT. Each reference
in the Security Agreement to the Credit Agreement shall be deemed to be
a reference to the Amended and Restated Credit Agreement.
<PAGE>
Section 3. CONDITIONS PRECEDENT. As provided in Section 2 above, the
amendments set forth in Section 2 shall become effective, as of the date hereof,
upon the due executions and delivery of this Amendment by the Obligors and the
Agent.
Section 4. MISCELLANEOUS. Except as herein provided, the Security
Agreement shall remain unchanged and in full force and effect. This Amendment
may be executed in any number of counterparts, all of which taken together shall
constitute one and the same amendatory instrument and any of the parties hereto
may execute this Amendment by signing any such counterpart. This Amendment shall
be governed by, and construed in accordance with, the internal laws of the State
of New York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered as of the day and year first above written.
CORNELL CORRECTIONS, INC.
By
Title:
SUBSIDIARY GUARANTORS
CORNELL CORRECTIONS MANAGEMENT, INC.
By
Title:
CORNELL CORRECTIONS CONSULTING, INC.
By
Title:
CORNELL CORRECTIONS OF RHODE ISLAND, INC.
By
Title:
<PAGE>
THE CORNELL COX GROUP, L.P.
By CORNELL CORRECTIONS OF NORTH AMERICA,
INC.
By
Title:
CORNELL CORRECTIONS OF NORTH AMERICA, INC.
By
Title:
CORNELL CORRECTIONS OF TEXAS, INC.
By
Title:
CORNELL CORRECTIONS OF CALIFORNIA, INC.
By
Title:
INTERNATIONAL SELF-HELP SERVICES, INC.
By
Title:
<PAGE>
AGENT
INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL
CORPORATION, as Agent
By
Title:
<PAGE>
SECURITY AGREEMENT
ANNEX 1
CORNELL CORRECTIONS, INC., & SUBSIDIARIES
ING FINANCING
PLEDGED STOCK
<TABLE>
<CAPTION>
ISSUER CERT.#'S REGISTERED OWNER # OF SHARES
<S> <C> <C> <C>
Cornell Corrections Management, 1 Cornell Corrections, Inc. 1000
Inc.
Cornell Corrections Consulting, 1 Cornell Corrections Management, Inc. 1000
Inc.
Cornell Corrections of Rhode 1 Cornell Corrections Management, Inc. 1000
Island, Inc.
The Cornell Cox Group, L.P. 99% Cornell Corrections, Inc. (limited ptr)
1% Cornell Corrections of North America,
Inc. (General ptr)
Cornell Corrections of Texas, Inc. 1 Cornell Corrections Management, Inc. 1000
Cornell Corrections of North 1 Cornell Corrections, Inc. 1000
America, Inc.
Cornell Corrections of California, 1 Cornell Corrections Management, Inc. 3160
Inc.
International Self-Help Services, Cornell Corrections Management, Inc. 1000
Inc. 3,4
</TABLE>
<PAGE>
EXHIBIT C-1
[FORM OF PRO FORMA FINANCIAL STATEMENTS]
OMITTED
<PAGE>
EXHIBIT C-2
[FORM OF BUDGET]
OMITTED
<PAGE>
EXHIBIT C-3
[FORM OF MONTHLY REPORT]
OMITTED
<PAGE>
EXHIBIT D-1
[FORM OF OPINION OF NEW YORK COUNSEL TO THE OBLIGORS]
OMITTED
<PAGE>
EXHIBIT D-2
[FORM OF OPINION OF TEXAS COUNSEL TO THE OBLIGORS]
OMITTED
<PAGE>
EXHIBIT E
[FORM OF CONFIDENTIALITY AGREEMENT]
CONFIDENTIALITY AGREEMENT
[DATE]
[INSERT NAME AND
ADDRESS OF PROSPECTIVE
PARTICIPANT OR ASSIGNEE]
Re: Amended and Restated Credit Agreement dated as of July
3, 1996 (the "CREDIT AGREEMENT"), between Cornell Corrections,
Inc. (the "COMPANY"), the Subsidiaries of the Company identified
on the signature pages thereof under the caption "SUBSIDIARY
GUARANTORS", the lenders named therein and Internationale
Nederlanden (U.S.) Capital Corporation, as Agent.
Dear Ladies and Gentlemen:
As a Lender party to the Credit Agreement, we have agreed with
the Company pursuant to Section 12.12 of the Credit Agreement to use reasonable
precautions to keep confidential, except as otherwise provided therein, all
non-public information relating to the Obligors.
As provided in said Section 12.12, we are permitted to provide
you, as a prospective [HOLDER OF A PARTICIPATION IN THE LOANS (AS DEFINED IN THE
CREDIT AGREEMENT)] [ASSIGNEE LENDER], with certain of such non-public
information subject to the execution and delivery by you, prior to receiving
such non-public information, of a Confidentiality Agreement in this form. Such
information will not be made available to you until your execution and return to
us of this Confidentiality Agreement.
Accordingly, in consideration of the foregoing, you agree (on
behalf of yourself and each of your affiliates, directors, officers, employees
and representatives and for the benefit of us and each Obligor) that (A) such
information will not be used by you except in connection with the proposed
[PARTICIPATION][ASSIGNMENT] mentioned above and (B) you shall use reasonable
precautions, in accordance with your customary procedures for handling
confidential information and
<PAGE>
in accordance with safe and sound banking practices, to keep such information
confidential, PROVIDED that nothing herein shall limit the disclosure of any
such information (i) to the extent required by statute, rule, regulation or
judicial process, (ii) to your counsel or to counsel for any of the Lenders or
the Agent, (iii) to bank examiners, auditors or accountants, (iv) to the Agent
or any other Lender, (v) in connection with any litigation to which you or any
one or more of the Lenders or the Agent are a party relating to any of Obligors
or the transactions contemplated by the Credit Agreement, (vi) to a subsidiary
or affiliate of yours or (vii) to any assignee or participant (or prospective
assignee or participant) so long as such assignee or participant (or prospective
assignee or participant) first executes and delivers to you a Confidentiality
Agreement substantially in the form hereof; PROVIDED, FURTHER, that in no event
shall you be obligated to return any materials furnished to you pursuant to this
Confidentiality Agreement.
If you are a prospective assignee, your obligations under this
Confidentiality Agreement shall be superseded by Section 12.12 of the Credit
Agreement on the date upon which you become a Lender under the Credit Agreement
pursuant to Section 12.06 thereof.
Please indicate your agreement to the foregoing by signing as
provided below the enclosed copy of this Confidentiality Agreement and returning
the same to us.
Very truly yours,
[INSERT NAME OF LENDER]
By_________________________
The foregoing is agreed to as of the date of this letter.
[INSERT NAME OF PROSPECTIVE
PARTICIPANT OR ASSIGNEE]
By_________________________]
<PAGE>
EXHIBIT 10.24
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$6,000,000 New York, New York
July 3, 1996
FOR VALUE RECEIVED, CORNELL CORRECTIONS, INC., a Delaware corporation
(the "COMPANY"), HEREBY PROMISES TO PAY to the order of INTERNATIONALE
NEDERLANDEN (U.S.) CAPITAL CORPORATION (the "NOTEHOLDER"), on December 30, 1996,
at the Noteholder's office at 135 East 57th Street, New York, New York (the "NEW
YORK OFFICE"), the sum of SIX MILLION DOLLARS, and to pay
interest on the unpaid principal amount of this Note as hereinafter set forth,
PROVIDED that the unpaid principal amount hereof and accrued interest hereon
shall be subject to Conversion (as that term is hereinafter defined) as provided
in Section 3 hereof.
Section 1. DEFINITIONS. As used herein, the following terms shall have
the following meanings (all terms defined in this Section 1 or in other
provisions of this Note in the singular have the same meanings when used in the
plural and VICE VERSA):
"BUSINESS DAY" shall mean any day on which commercial banks are not
authorized or required to close in New York City.
"COMMON STOCK" shall mean shares of Class A Common Stock of the Company.
"CONVERSION" is defined in Section 3.01 hereof.
"CONVERSION PRICE" is defined in Section 3.01 hereof.
"CONVERSION SHARES" shall mean the shares of Common Stock issued or
issuable upon conversion of this Note in accordance with Section 3 hereof.
"CREDIT AGREEMENT" shall mean the Amended and Restated Credit Agreement
dated as of July 3, 1996 among the Company, the Subsidiary Guarantors (as
defined therein), the Lenders (as defined therein) and Internationale
Nederlanden (U.S.) Capital Corporation, as agent for said lenders, as the same
may be modified and supplemented and in effect from time to time.
"DOLLARS" and "$" shall mean lawful money of the United States of
America.
"FULLY DILUTED BASIS" means, as applied to the calculation of the number
of shares of Common Stock outstanding at any time, after giving effect to (a)
all shares of Common Stock outstanding at the time of determination, (b) all
shares of Common Stock issuable upon the conversion, exercise or exchange of any
convertible security, warrant, option, subscriptions, calls or other rights to
acquire Common Stock outstanding at the time of determination, irrespective of
whether such conversion, exercise or exchange is permitted, restricted or vested
at the time of determination, and irrespective of the price or consideration
required by such conversion, exercise or exchange, and (c) all other
commitments, promises or understandings to issue any shares of Common Stock or
any convertible security, warrant, option, subscription, call or other rights
outstanding at the time of determination.
"MARKET PRICE" shall mean, with respect to a share of Common Stock on
any Business Day:
-1-
(a) if the Common Stock is publicly traded at the time of
determination, the average of the closing prices for the Common
Stock on all domestic securities exchanges on which such security
may at the time be listed, or, if there have been no sales on any
such exchange on such day, the average of the highest bid and
lowest asked prices on all such exchanges at the end of such day,
or, if on any day such security is not so listed, the average of
the representative bid and asked prices quoted on the NASDAQ
System as of 4:00 p.m., New York time, on such day, or if on any
day such security is not quoted in the NASDAQ System, the average
of the highest bid and lowest asked prices on such day in the
domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor
organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being
determined and the 20 consecutive Business Days prior to such
day; or
(b) if the Common Stock is not publicly traded at the time
of determination then, solely for purposes of Section 3 hereof,
the Market Price shall be the Market Value Per Share.
"MARKET VALUE" shall mean the fair saleable price that would be paid for
all of the Common Stock in an arm's-length transaction between a willing buyer
and a willing seller (neither acting under compulsion), viewing the Company on a
going concern basis, using valuation techniques then prevailing in the Valuation
Procedures, and assuming full disclosure and understanding of all relevant
information and a reasonable period of time for effectuating such sale; PROVIDED
that in addition to the foregoing, for purposes of determining "Market Value",
"fair saleable price", "going concern basis" and similar terms, (i) any contract
or legal limitation in respect of the shares of Common Stock, including their
transfer, voting and other rights shall be ignored and (ii) any illiquidity
arising by contract in respect of the shares of Common Stock and any voting
rights or control rights amongst the holders of Common Stock, shall be ignored.
"MARKET VALUE PER SHARE" shall mean the price per share of Common Stock
obtained by dividing (a) the Market Value by (b) the number of shares of Common
Stock outstanding (on a Fully Diluted Basis) at the time of the determination.
"OTHER ANTI-DILUTION INSTRUMENTS" shall mean any option, warrant,
convertible security, subscription, call or other rights to acquire Common Stock
whether outstanding as of the date hereof or hereafter issued, together with any
agreements relating thereto, which provide for anti-dilution or other
adjustments in the number of shares of Common Stock and/or exercise, exchange or
conversion price thereof.
"VALUATION PROCEDURE" shall mean, with respect to the determination of
any amount or value required to be determined in accordance with such procedure,
a determination (which shall be final and binding on the Company and the
Noteholder) made:
(i) by agreement among the Company and the Noteholder within 30
days following the event requiring such determination, or
(ii) in the absence of such an agreement, by an Appraiser (as
defined below) selected in accordance with the further provisions of
this definition.
If required, an Appraiser shall be selected within ten days following the
expiration of the 30-day period referred to above, either by agreement among the
Company and the Noteholder or, in the absence of such agreement, by lot from a
list of four potential Appraisers remaining after the Company nominates three,
the Noteholder nominate three, and each side eliminates one potential Appraiser.
The Appraiser shall be instructed by the Company and the Noteholder to make its
determination within 30 days of its selection. The fees and expenses of an
Appraiser selected hereunder shall be borne, in equal shares by the Company. As
used herein, "APPRAISER" shall mean a nationally-recognized investment banking
firm.
-2-
Section 2. TERMS OF THE NOTE.
1.021 PREPAYMENTS. The Company may prepay this Note at any time
and from time to time upon notice to the Lender by 1:00 p.m. New York time on
the date of prepayment, which notice shall specify the prepayment date (which
shall be a Business Day) and the amount of the prepayment (which shall be at
least $500,000) and shall be irrevocable and effective only upon receipt by the
Noteholder, PROVIDED that interest on the principal prepaid, accrued to but
excluding the prepayment date, shall be paid on the prepayment date.
1.022 INTEREST. The Company hereby promises to pay to the
Noteholder, on December 30, 1996, interest on the unpaid principal amount of
this Note for the period from and including the date made to but excluding the
date such Note shall be paid in full, at a rate (calculated on the basis of a
year of 360 days and the actual days elapsed) equal to 9.5% PER ANNUM, PROVIDED
that accrued interest hereon shall be subject to Conversion as provided in
Section 3 hereof.
1.023 PAYMENTS. Except to the extent otherwise provided herein,
all payments of principal, interest and other amounts to be made by the Company
under this Note shall be made in Dollars, in immediately available funds,
without deduction, setoff or counterclaim, to the Noteholder at the New York
Office not later than 1:00 p.m. New York time on the date on which such payment
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day).
1.024 PUT AGREEMENT. The Noteholder is entitled to the benefits
of the Put Agreement of even date hereof, substantially in the form of Exhibit A
hereto.
1.025 SUBORDINATION. This Note is subject to the provisions of
the Subordination Agreement of even date herewith, substantially in the form of
Exhibit B hereto.
Section 3. CONVERSION OF THE NOTE.
1.031 CONVERSION.
(a) If the maturity of the principal hereof shall have been
accelerated as provided in Section 4 hereof and the principal hereof, together
with all accrued interest hereon, shall not have been paid in full in cash by no
later than the third Business Day thereafter, THEN, by notice from the
Noteholder to the Company, the Noteholder may require that, on the date
specified in such notice (which date shall be no earlier than 15 days after the
date of such acceleration), this Note shall convert into shares of Common Stock
as hereinafter provided.
(b) If the circumstances described in Section 3.01(a) hereof
shall not have theretofore occurred, THEN, on December 30, 1996 this Note shall
automatically convert into shares of Common Stock as hereinafter provided.
(c) In the event of a conversion pursuant to Section 3.01(a) or
(b) hereof (the "CONVERSION"), the Noteholder shall receive, for no additional
payment or consideration whatsoever, the number of shares of Common Stock
obtained by dividing:
(i) an amount equal to (x) the outstanding principal amount of
this Note PLUS (y) all interest then accrued on this Note, BY
(ii) an amount equal to $5.64, as such amount may be adjusted
pursuant to Section 3.02 hereof (the "CONVERSION PRICE").
-3-
1.032 ADJUSTMENT OF CONVERSION PRICE AND NUMBER OF CONVERSION
SHARES. The Conversion Price shall be subject to adjustment from time to time in
accordance with this Section 3.02.
(a) ADJUSTMENT UPON ISSUANCE OF COMMON STOCK. If, at any time
after the date hereof, the Company shall issue, sell or otherwise
distribute any shares of Common Stock without consideration or for a
consideration per share less than the Market Price (determined on a per
share basis) as of the date of such issuance or sale, then, effective
immediately upon such issuance or sale, the Conversion Price shall be
reduced (without regard to any other provisions hereof) to an amount
equal to the product obtained by multiplying (A) the Conversion Price in
effect immediately prior to such issuance or sale, by (B) a fraction,
the numerator of which shall be the sum of (x) the product obtained by
multiplying (1) the number of shares of Common Stock outstanding (on a
Fully Diluted Basis) immediately prior to such issuance or sale by (2)
the Market Price as of the date of such issuance or sale, and (y) the
consideration, if any, received by the Company upon such issuance or
sale, and the denominator of which shall be the product obtained by
multiplying (C) the number of shares of Common Stock outstanding (on a
Fully Diluted Basis) immediately after such issuance or sale, by (D) the
Market Price as of the date of issuance or sale. Upon each such
adjustment of the Conversion Price hereunder, the number of Conversion
Shares which may be obtained upon conversion of this Note shall be
increased to the number of shares determined by multiplying (A) the
number of Conversion Shares which could be obtained upon conversion of
this Note immediately prior to such adjustment by (B) a fraction, the
numerator of which shall be the Conversion Price in effect immediately
prior to such adjustment and the denominator of which shall be the
Conversion Price in effect immediately after such adjustment.
(b) OTHER ADJUSTMENTS. For the purpose of determining the
adjusted Conversion Price under this Section 3.02, the following shall
be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any
manner issues, grants or otherwise distributes any rights or
options to subscribe for or to purchase (A) Common Stock or (B)
any stock or other securities convertible into or exchangeable
for Common Stock (such rights or options being herein called
"OPTIONS" and such convertible or exchangeable stock or
securities being herein called "CONVERTIBLE SECURITIES"), and the
price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such
Convertible Securities is less than the Market Price (determined
on a per share basis) as of the date of issuance or grant of such
Options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options (or upon conversion or
exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options) shall be
deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For purposes of this paragraph,
the price per share for which Common Stock is issuable upon
exercise of Options or upon conversion or exchange of Convertible
Securities issuable upon exercise of Options shall be determined
by dividing (A) the total amount, if any, received or receivable
by the Company as consideration for the issuing or granting of
such Options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all
such Options, plus in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Company upon
issuance or sale of such Convertible Securities and the
conversion or exchange thereof, by (B) the total maximum number
of shares of Common Stock issuable upon exercise of such Options
or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options. No further
adjustment of the Conversion Price shall be made upon the actual
issuance of such Common Stock or of such Convertible Securities
upon the exercise of such Options or upon the actual issuance of
such Common Stock upon conversion or exchange of such Convertible
Securities.
-4-
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in
any manner issues, sells or otherwise distributes any Convertible
Securities having an exercise or conversion or exchange price per
share of Common Stock which is less than the Market Price
(determined on a per share basis) as of the date of such issuance
or sale, then the maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible
Securities shall be deemed to be outstanding and to have been
issued and sold by the Company for such lower price per share.
For purposes of this paragraph, the price per share for which
Common Stock is issuable upon conversion or exchange of
Convertible Securities is determined by dividing (A) the total
amount received or receivable by the Company as consideration for
the issuance or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof,
by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment of the Conversion Price shall
be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any
such issuance or sale of such Convertible Securities is made upon
exercise of any Options for which adjustments of the Conversion
Price had been or are required to be made pursuant to other
provisions of this Section 3.02, no further adjustment of the
Conversion Price shall be made by reason of such issuance or
sale.
(iii) CHANGE IN OPTION PRICE OR CONVERSION PRICE. If, at
any time, there is any change in (x) the purchase price provided
for in any Options, (y) the additional consideration, if any,
payable upon the issuance, conversion or exchange of any
Convertible Securities, or (z) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock,
then the Conversion Price in effect at the time of such change
shall be readjusted to the Conversion Price which would have been
in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case
may be, at the time initially granted, issued or sold and the
number of Conversion Shares shall be correspondingly readjusted.
(iv) CALCULATION OF CONSIDERATION RECEIVED. If any Common
Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, then the
consideration received therefor shall be deemed to be the net
amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for
consideration other than cash, then the amount of the
consideration other than cash received by the Company shall be
the fair value of such consideration determined, in good faith,
by the Board of Directors of the Company.
(v) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or
held by or for the account of the Company or any Subsidiary of
the Company, and the disposition of any shares so owned or held
shall be considered an issue or sale of Common Stock.
(vi) RECORD DATE. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock,
Options or in Convertible Securities or (B) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then
such record date shall be deemed to be the date of the issuance,
sale or distribution of the shares of Common Stock deemed to have
been issued, sold or distributed upon the declaration of such
dividend or the making of such other distribution or the date of
the granting of such right of subscription or purchase, as the
case may be.
-5-
(c) SUBDIVISIONS OR COMBINATIONS OF COMMON STOCK. If, at any time
prior to the Conversion of this Note, (a) the number of shares of Common
Stock outstanding is increased by a dividend or other distribution
payable in shares of Common Stock or by a subdivision or split-up of
shares of Common Stock or (b) the number of shares of Common Stock
outstanding is decreased by a combination, reverse stock split of shares
of Common Stock or similar transaction, then, in each case, effective as
of the effective date of such event retroactive to the record date, if
any, of such event, (i) the Conversion Price shall be adjusted to a
price determined by multiplying (A) the Conversion Price in effect
immediately prior to such event by (B) a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be
the number of shares of Common Stock outstanding after giving effect to
such event, and (ii) the number of Conversion Shares subject to purchase
upon the conversion of this Note shall be adjusted effective at such
time, to a number equal to the product of (A) the number of Conversion
Shares subject to purchase upon the exercise of such Note immediately
prior to such event by (B) a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding after giving effect to
such event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such event.
(d) CAPITAL REORGANIZATION OR CAPITAL RECLASSIFICATIONS. If, at
any time prior to the Conversion, there shall be any capital
reorganization or any reclassification of the capital stock of the
Company (other than a change in par value or from par value to no par
value or from no par value to par value or as a result of a stock
dividend or subdivision, split-up or combination of shares), then, in
each case the Company shall cause effective provision to be made so that
this Note shall, effective as of the effective date of such event
retroactive to the record date, if any, of such event, be exercisable or
exchangeable for the kind and number of shares of stock, other
securities, cash or other property to which a Holder of the number of
shares of Common Stock deliverable upon conversion or exchange of this
Note would have been entitled upon such reorganization or
reclassification and any such provision shall include adjustments in
respect of such stock, securities or other property that shall be as
nearly equivalent as may be practicable to the adjustments provided for
in this Note with respect to this Note.
(e) CONSOLIDATIONS AND MERGERS. If, at any time prior to the
Conversion, the Company shall consolidate with, merge with or into, or
sell all or substantially all of its assets or property to, another
corporation, then the Company shall cause effective provision to be made
so that this Note shall, effective as of the effective date of such
event retroactive to the record date, if any, of such event, be
exercisable or exchangeable for the kind and number of shares of stock,
other securities, cash or other property to which a holder of the number
of shares of Common Stock deliverable upon conversion or exchange of
such Note would have been entitled upon such event.
(f) NOTICE; CALCULATIONS; ETC. Whenever the Conversion Price and
the number of Conversion Shares shall be adjusted as provided in this
Section 3.02, the Company shall provide to the Noteholder a statement,
signed by the President or Chief Financial Officer of the Company,
describing in detail the facts requiring such adjustment and setting
forth a calculation of the Conversion Price and the number of Conversion
Shares applicable to this Note after giving effect to such adjustment.
All calculations under this Section 3.02 shall be made to the nearest
one hundredth of a cent ($.01) or to the nearest one-tenth of a share,
as the case may be. Adjustments pursuant to paragraphs (a), (b) and (c)
of this Section 3.02, shall apply to successive events or transactions
of the type covered thereby.
(g) CERTAIN ADJUSTMENTS; CASH DIVIDENDS OR DISTRIBUTIONS. In the
event that the Company in any manner issues or grants Options or
Convertible Securities, or any other transaction, circumstances or
events occur which give rise to anti-dilution adjustments under Other
Anti-Dilution Instruments, then the Company will promptly make
proportional, equitable and corresponding adjustments in the number of
shares of Common Stock issuable upon conversion of this Note to protect
the Noteholder against dilution as a result of such events. In the event
the Company in any manner makes any dividends or distributions
-6-
in cash, cash equivalent or marketable securities, the Conversion Price
shall be adjusted by multiplying the Conversion Price (determined on a
per share basis) by a fraction (x) the numerator of which is the Market
Price immediately prior to the time of such dividend or distribution
(determined on a per share basis) less the per share amount of such
dividend or distribution and (y) the denominator of which is such Market
Price.
(h) ADJUSTMENT RULES. Any adjustments pursuant to this Section
3.02 shall be made successively whenever an event referred to herein
shall occur.
Section 4. EVENTS OF ACCELERATION. Upon the occurrence of any of
the following:
(a) a default by the Company in the payment when due of (x) any
principal of or interest on this Note or any other amount payable
hereunder or (y) any Senior Debt, or
(b) the consummation of the Company's initial public offering,
THEN, the Noteholder may, by notice to the Company, declare the principal amount
then outstanding of, and the accrued interest on, this Note and all other
amounts payable by the Company hereunder to be forthwith due and payable,
whereupon such amounts shall be immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by the Company.
Section 5. MISCELLANEOUS.
1.051 WAIVER; ETC. No failure on the part of the Noteholder to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right.
1.052 EXPENSES, ETC. The Company agrees to pay or reimburse the
Noteholder for paying: (a) all out-of-pocket costs and expenses of the
Noteholder (including, without limitation, the reasonable fees and expenses of
Mayer, Brown & Platt, special New York counsel to the Noteholder), in connection
with (i) the negotiation, preparation, execution and delivery of this Note and
(ii) any modification, supplement or waiver of any of the terms of this Note;
(b) all reasonable costs and expenses of the Noteholder (including, without
limitation, reasonable counsel's fees) in connection with (i) any Event of
Default and (ii) the enforcement of this Section 5.02; and (c) all transfer,
stamp, documentary or other similar taxes, assessments or charges levied by any
governmental or revenue authority in respect of this Note or any other document
referred to herein or therein.
1.053 BINDING EFFECT. This Note shall be binding upon and inure
to the benefit of the Company and the Noteholder and their respective successors
and assigns, except that the Company may not assign its obligations hereunder.
1.054 NOTICES. All notices and other communications provided for
herein (including, without limitation, any modifications of, or waivers or
consents under, this Note) shall be given or made in writing by first class
certified mail, postage prepaid (return receipt requested) or delivered by hand
or overnight courier to the intended recipient at the address specified below;
or, as to any party, at such other address as shall be designated by such party
in a notice to each other party. In the case of notices to the Noteholder:
Internationale Nederlanden (U.S.) Capital Corporation
135 East 57th Street
New York, New York 10022-2101
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Telephone: (212) 446-1955
Attention: Mr. David P. Scopelliti
In the case of notices to the Company:
Cornell Corrections, Inc.
4801 Woodway
Suite 400 West
Houston, Texas 77056
Telephone: (713) 623-0790
Attention: Mr. Steven W. Logan
Except as otherwise provided, all such communications shall be deemed to have
been duly given upon delivery if delivered by hand or three days after mailing,
if delivered by first class certified mail, postage prepaid, in each case given
or addressed as aforesaid.
1.055 GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO ANY CONFLICTS OF LAW PRINCIPLES THEREOF.
1.056 SUBMISSION TO JURISDICTION; WAIVER OF OBJECTION TO VENUE
AND INCONVENIENT FORUM. THE COMPANY HEREBY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR THE
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS NOTE OR THE
TRANSACTIONS CONTEMPLATED HEREBY. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM
THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
1.057 WAIVER OF JURY TRIAL. THE COMPANY HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
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IN WITNESS WHEREOF, the Company has executed this Note as of the day and
year first above written.
CORNELL CORRECTIONS, INC.
By /s/ STEVEN W. LOGAN
--------------------
Name: Steven W. Logan
Title: Chief Financial Officer
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EXHIBIT 10.25
PUT AGREEMENT
PUT AGREEMENT dated as of July 3, 1996 among the following:
(a) CORNELL CORRECTIONS, INC., a Delaware corporation (the
"COMPANY");
(b) CONCORD PARTNERS II, L.P., a Delaware limited partnership
("DILLON READ");
(c) CHARTERHOUSE EQUITY PARTNERS II, L.P., a Delaware limited
partnership ("CHARTERHOUSE", each of Dillon Read and Charterhouse
individually referred to as an "OBLIGOR" and collectively as the
"OBLIGORS"); and
(d) INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, a
Delaware corporation ("ING").
ING is the holder of a Convertible Subordinated Promissory Note of the
Company, dated as of July 3, 1996 (as modified and supplemented and in effect
from time to time, the "NOTE"). Pursuant to its terms, the Note will be
converted into the common stock of the Company ("COMMON STOCK") on December 30,
1996 and in other circumstances as set forth in the Note (the "CONVERSION"). In
connection with the Conversion, the Company, the Obligors and ING wish to agree
on the terms on which the Obligors are required to purchase the Common Stock
acquired in the Conversion and, accordingly, the parties hereto hereby agree as
follows:
Section 1. DEFINITIONS. Except to the extent defined herein, terms
defined in the Note shall have the respective meanings given to them in the Note
when used herein. In addition, as used herein:
"CONVERSION DATE" shall mean the date that the Conversion occurs
pursuant to the Note.
"PRO RATA SHARE" shall mean, (a) in the case of Charterhouse,
40.279% and (b) in the case of Dillon Read, 59.721%.
Section 2. RIGHT TO PUT COMMON STOCK.
2.01 Each of the Obligors hereby severally agrees that, upon the request
of ING given by no later than 15 days prior to the Conversion, it shall purchase
from ING its Pro Rata Share of the Conversion Shares on the Conversion Date for
a per share purchase price equal to the Conversion Price. The purchase price
shall be payable on the Conversion Date in Dollars and in funds immediately
available in New York City.
2.02 After receipt from each Obligor of the purchase price of the
Conversion Shares pursuant to Section 2.01 hereof, ING shall instruct the
Company to issue the Conversion Shares to the respective Obligors in accordance
with their Pro Rata Shares. The giving of such instruction shall discharge ING
from any further obligation to ensure that any of the Conversion Shares are
actually delivered to either Obligor.
2.03 If the Obligors so request, instead of purchasing the Conversion
Shares as herein contemplated, they may purchase the Note on the Conversion Date
for the Conversion Price.
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2.04 The obligations of the Obligors under this Section 2 are absolute
and unconditional, irrespective of the value, genuineness, validity, regularity
or enforceability of the obligations of the Company under the Note, and, to the
fullest extent permitted by applicable law, irrespective of any other
circumstance whatsoever that might otherwise constitute a legal or equitable
discharge or defense, it being the intent of this Section 2 that the obligations
of the Obligors hereunder shall be absolute and unconditional, under any and all
circumstances. Without in any way limiting the generality of the foregoing, none
of the Obligors' obligations under this Section 2 shall be modified, discharged
or terminated as a result of, and each Obligor agrees to perform its obligations
under this Section 2 notwithstanding, the occurrence of any of the following:
(a) the bankruptcy or insolvency of the Company or any of its
subsidiaries;
(b) any default by the Company under the Credit Agreement, the
Note or any Loan Document (as defined in the Credit Agreement); or
(c) the failure of the Company to authorize the issuance of, the
failure of the Company to tender the certificates representing, or the
inability of the Company to tender any of the certificates representing,
any of the Common Stock pursuant to the Note.
Section 3. ING'S OBLIGATION TO PUT. ING unconditionally and irrevocably
agrees to exercise its right under Section 2 hereof to require the Obligors to
purchase all of the Conversion Shares within the time periods and otherwise as
provided in said Section 2, PROVIDED that in the event that either or both of
the Obligors default in their respective obligations under said Section 2, ING
shall be entitled to receive, in accordance with the Note, the Conversion Shares
that it is entitled to receive pursuant to the terms thereof (other than any
Conversion Shares purchased by a non-defaulting Obligor in accordance with this
Agreement) free and clear of any claim by either of the Obligors.
Section 4. MISCELLANEOUS
(a) The Company hereby agrees to indemnify ING and its directors,
officers, employees, attorneys and agents from, and hold each of them harmless
(to the fullest extent permitted by law) against, any and all losses,
liabilities, claims, damages or expenses incurred by any of them arising out of
or by reason of any investigation or litigation or other proceedings (including
any threatened investigation or litigation or other proceeds) relating to this
Agreement and the transactions contemplated hereby, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence or willful misconduct of the person to be
indemnified).
(b) Each of the parties to this Agreement represents and warrants to all
other parties hereto that (i) it is duly organized, validly existing, and in
good standing under the laws of the State in which it is organized, (ii) it has
the full power and authority to enter into this Agreement, (iii) the execution,
delivery and performance by such party of this Agreement have been duly
authorized by all necessary actions, and this Agreement constitutes the valid
and binding obligation of such party enforceable against it in accordance with
its terms, except to the extent enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights in general and subject to general principles of
equity (regardless of whether enforceability is considered in a proceeding in
equity or at law), and (iv) the execution, delivery and performance of this
Agreement by such party will not violate or conflict with its organizational
documents, or conflict with or result in a breach, termination or acceleration
of, or constitute a default under, any other agreement to which it is a party,
or violate any law, regulation, order, writ, judgment, injunction or decree
applicable to it.
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(c) If any term or provision of this Agreement or the application
thereof to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Agreement, or the application of such term
or provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
(d) This Agreement may be amended, modified or terminated only in a
writing signed by ING, the Company and any Obligor against whom enforcement of
any such amendment or modification is sought.
(e) This Agreement shall be binding upon, shall inure to the benefit of
and shall be enforceable by the respective successors and assigns of the parties
hereto. Notwithstanding the foregoing, no Obligor may, without the written
consent of the Company and ING, assign any rights hereunder except to a
successor by operation of law.
(f) THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED, APPLIED AND ENFORCED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF. Each of the parties hereto
hereby submits to
the nonexclusive jurisdiction of the United States District Court for the
Southern District of New York and of any New York State Court sitting in the
Borough of Manhattan in the City of New York for the purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated hereby. Each of the parties hereto irrevocably waives, to the
fullest extent permitted by applicable law, any objection that it may now or
hereafter have to the laying of the venue of any such proceeding brought in such
a court and any claim that any such proceeding brought in such a court has been
brought in an inconvenient forum.
(g) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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IN WITNESS, WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
CORNELL CORRECTIONS, INC.
By:/s/ STEVEN W. LOGAN
---------------------------------
Title: Chief Financial Officer
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION
By:/s/ DAVID BALESTRERY
---------------------------------
Title: Senior Associate
CONCORD PARTNERS II, L.P.
By: /s/ PETER A. LEIDEL
---------------------------------
Title:
CHARTERHOUSE EQUITY PARTNERS,
II, L.P.
By Chusa Equity Investors II, L.P.,
General Partner
By Charterhouse Equity II, Inc.,
General Partner
By:/s/ RICHARD T. HENSHAW III
---------------------------------
Title: Senior Vice President
EXHIBIT 10.26
EXECUTION COPY
SUBORDINATION AGREEMENT
SUBORDINATION AGREEMENT, dated as of July 3, 1996, among the following:
(a) INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, a
Delaware corporation, as the subordinated creditor (in such capacity,
the "SUBORDINATED CREDITOR");
(b) INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, as
agent for the lenders party to the Credit Agreement referred to below
(in such capacity, together with its successors in such capacity, the
"AGENT"); and
(c) CORNELL CORRECTIONS, INC., a corporation duly organized and
validly existing under the laws of the State of Delaware (the
"COMPANY"); and each of the Subsidiaries of the Company identified under
the caption "Guarantors" on the signature pages hereto (individually, a
"GUARANTOR" and, collectively, the "GUARANTORS"; and the Guarantors
collectively with the Company, the "OBLIGORS").
The Obligors, certain lenders and the Agent are parties to an
Amended and Restated Credit Agreement dated as of July 3, 1996 (as modified and
supplemented and in effect from time to time, the "CREDIT AGREEMENT"),
providing, subject to the terms and conditions thereof, for extensions of credit
(by making loans and issuing letters of credit) to be made by said lenders to
the Company in an aggregate principal or face amount not exceeding $35,000,000.
To induce said lenders to enter into the Credit Agreement and to
extend credit thereunder, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Subordinated
Creditor has agreed to subordinate the Subordinated Debt (as hereinafter
defined) to the Senior Debt (as hereinafter defined) all in the manner and to
the extent hereinafter provided. Accordingly, the parties hereto agree as
follows:
Section 1. DEFINITIONS. Terms defined in the Credit Agreement are
used herein as defined therein. In addition, as used herein:
"LENDERS" shall mean the "Lenders" party to the Credit Agreement
from time to time.
"PERSON" shall mean any individual, corporation, company,
voluntary association, partnership, joint venture, trust, unincorporated
organization or government (or any agency, instrumentality or political
subdivision thereof).
"REORGANIZATION DEBT SECURITIES" shall mean, with respect to each
Obligor, debt or equity securities of such Obligor as reorganized or readjusted
or debt or equity securities of such Obligor or any other company, trust or
organization provided for by a plan of reorganization or readjustment, or debt
securities that are subordinated, to at least the same extent as the
Subordinated Debt, to the payment of all Senior Debt that will be outstanding
after giving effect to such plan of reorganization or readjustment.
"SENIOR DEBT" shall mean all indebtedness and other obligations
of the Obligors under the Credit Agreement, including all interest, expenses,
indemnities and penalties and all commitment and agency fees (but excluding
other fees) payable from time to time under the Credit Agreement, up to but not
exceeding an aggregate
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principal or face amount equal to $38,500,000, LESS (x) in the case of any such
indebtedness constituting term loans, the aggregate amount of payments or
prepayments of principal made in respect thereof and (y) in the case of any such
indebtedness constituting revolving credit obligations, the aggregate amount of
payments or prepayments of principal made in respect thereof to the extent made
in connection with (or that are subsequently followed by) permanent reductions
of the revolving credit commitments related to such obligations. The term
"SENIOR DEBT" shall include any interest accruing for a period of up to twelve
months (but not longer) after the date of any filing by any Obligor of any
petition in bankruptcy or the commencing of any bankruptcy, insolvency or
similar proceedings with respect to such Obligor, whether or not such interest
is allowable as a claim in any such proceeding. Notwithstanding the foregoing,
"SENIOR DEBT" shall not include any obligations or other indebtedness of any
Obligor that by its terms is expressly stated not to be superior in right of
payment to the Subordinated Debt.
"SUBORDINATED DEBT" shall mean the principal of, and interest and
premium (if any) due under the Subordinated Debt Document, including, without
limitation, any amounts owing in respect of a breach of the representations,
warranties or covenants thereunder by any Obligor.
"SUBORDINATED DEBT DOCUMENT" shall mean the Convertible
Subordinated Promissory Note dated July 3, 1996 issued by the Company to the
Subordinated Creditor.
Section 2. SUBORDINATION.
2.01 SUBORDINATION OF SUBORDINATED DEBT. Each Obligor, for itself
and its successors and assigns, covenants and agrees, and the Subordinated
Creditor likewise covenants and agrees, that, to the extent and in the manner
set forth in this Agreement, the Subordinated Debt, and the payment from
whatever source of the principal of, and interest and premium (if any) on, the
Subordinated Debt, are hereby expressly made subordinate and subject in right of
payment to the prior payment in full in cash of all Senior Debt.
2.02 PAYMENT OF PROCEEDS UPON DISSOLUTION. In the event of (a)
any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding in connection
therewith, relative to any Obligor or to its creditors, as such, or to its
assets, or (b) any liquidation, dissolution or other winding up of any Obligor,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy, or (c) any assignment for the benefit of creditors or any other
marshalling of assets and liabilities of any Obligor, then and in any such
event:
(1) the Lenders shall be entitled to receive payment in full in
cash of all amounts due or to become due on or in respect of all Senior
Debt, or provision shall be made for such payment, before the
Subordinated Creditor shall be entitled to receive any payment on
account of principal of, or interest or premium (if any) on, the
Subordinated Debt;
(2) any payment or distribution of assets of such Obligor of any
kind or character, whether in cash, property or securities, by set-off
or otherwise, to which the Subordinated Creditor would be entitled but
for the provisions of this Agreement, including any such payment or
distribution that may be payable or deliverable by reason of the payment
of any other indebtedness of such Obligor being subordinated to the
payment of the Subordinated Debt (other than Reorganization Debt
Securities), shall be paid by the liquidating trustee or agent or other
Person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise, directly to
the Agent, to be paid to the Lenders, ratably according to the aggregate
amounts remaining unpaid on account of the principal of, and interest
and premium (if any) on, the Senior Debt held or represented by each
Lender, to the extent necessary to make payment in full in cash of all
Senior Debt remaining unpaid, after giving effect to any concurrent
payment or distribution to the Lenders; and
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(3) in the event that, notwithstanding the foregoing provisions
of this Section 2.02, the Subordinated Creditor shall have received,
before all Senior Debt is paid in full in cash or payment thereof
provided for, any such payment or distribution of assets of such Obligor
of any kind or character, whether in cash, property or securities (other
than Reorganization Debt Securities), including any such payment or
distribution arising out of the exercise by the Subordinated Creditor of
a right of set-off or counterclaim and any such payment or distribution
received by reason of any other indebtedness of such Obligor being
subordinated to the Subordinated Debt, then, and in such event, such
payment or distribution shall be held in trust for the benefit of, and
shall be immediately paid over or delivered to, the Agent, to be paid to
the Lenders, ratably according to the aggregate amounts remaining unpaid
on account of the principal of, and interest and premium (if any) on,
the Senior Debt held or represented by each Lender, to the extent
necessary to make payment in full in cash of all Senior Debt remaining
unpaid, after giving effect to any concurrent payment or distribution to
the Lenders.
The consolidation of any Obligor with, or the merger of any
Obligor into, another corporation or the liquidation or dissolution of such
Obligor following the conveyance or transfer of its properties and assets
substantially as an entirety to another corporation upon the terms and
conditions set forth in Section 9.05 of the Credit Agreement shall not be deemed
a dissolution, winding up, liquidation, reorganization, assignment for the
benefit of creditors or marshalling of assets and liabilities of such Obligor
for purposes of this Agreement if the corporation formed by such consolidation
or into which such Obligor is merged or the corporation that acquires by
conveyance or transfer such properties and assets substantially as an entirety,
as the case may be, shall, as a part of such consolidation, merger, conveyance
or transfer, comply with the conditions set forth in said Section 9.05.
2.03 NO PAYMENT WHEN SENIOR DEBT OUTSTANDING. So long as any
principal, interest or other amount payable with respect to the Senior Debt is
outstanding, no payment on account of the principal of, or interest or premium
(if any) on, the Subordinated Debt or any judgment with respect thereto (and no
payment on account of the purchase or redemption or other acquisition of the
Subordinated Debt) shall be made by or on behalf of any Obligor, PROVIDED that
if the outstanding amount of the Senior Debt has been reduced by at least
$25,000,000 from the proceeds of the Company's initial public offering, the
principal of, and the accrued interest on, the Subordinated Debt may be paid to
the extent of the net proceeds, of such initial public offering in excess of
$25,000,000. Except with respect to any payment in respect of the Subordinated
Debt made pursuant to the foregoing PROVISO, this Section 2.03 shall not alter
the rights of the holders of Senior Debt under Section 2.02 hereof.
2.04 OBLIGATION TO TURN OVER. In the event that, notwithstanding
the provisions of Section 2.03 hereof, the Subordinated Creditor shall have
received any payment prohibited by the foregoing provisions of said Section
2.03, including, without limitation, any such payment arising out of the
exercise by the Subordinated Creditor of a right of set-off or counterclaim and
any such payment received by reason of other indebtedness of such Obligor being
subordinated to the Subordinated Debt, then, and in any such event, such payment
shall be held in trust for the benefit of, and shall be immediately paid over or
delivered to, the Agent, to be paid to the Lenders, ratably according to the
aggregate amounts remaining unpaid on account of the principal of, and interest
and premium (if any) on, the Senior Debt held or represented by each Lender, for
application to such Senior Debt remaining unpaid, whether or not then due and
payable.
2.05 SUBROGATION. Subject to the payment in full in cash of all
Senior Debt, the Subordinated Creditor shall be subrogated (equally and ratably
with the holders of all indebtedness of each Obligor that by its express terms
is subordinated to Senior Debt of such Obligor to the same extent as the
Subordinated Debt is subordinated and that is entitled to like rights of
subrogation) to the rights of the Lenders to receive payments and distributions
of cash, property and securities applicable to the Senior Debt until the
principal of, and interest and premium (if any) on, the Subordinated Debt shall
be paid in full in cash. For purposes of such subrogation, no payments or
distributions to the Lenders of any cash, property or securities to which the
Subordinated Creditor would be entitled except for the provisions of this
Section 2, and no payments over pursuant to the provisions of
-3-
this Section 2 to the Lenders by the Subordinated Creditor, shall, as between an
Obligor, its creditors other than the Lenders, and the Subordinated Creditor, be
deemed to be a payment or distribution by such Obligor to or on account of the
Senior Debt.
2.06 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The provisions
of this Section 2 are and are intended solely for the purpose of defining the
relative rights of the Subordinated Creditor on the one hand and the Lenders on
the other hand. Nothing contained in this Section 2 or elsewhere in this
Agreement or in the Subordinated Debt Document is intended to or shall:
(a) impair, as among any Obligor, its creditors other than the
Lenders and the Subordinated Creditor, the obligation of such Obligor,
which is absolute and unconditional, to pay to the Subordinated Creditor
the principal of and interest on the Subordinated Debt as and when the
same shall become due and payable in accordance with its terms;
(b) affect the relative rights against such Obligor of the
Subordinated Creditor and creditors of such Obligor other than the
Lenders;
(c) vitiate the occurrence of an Event of Default under Section 4
of the Subordinated Debt Document to the extent that any failure to make
a payment of principal of, or interest or premium (if any) on, any
Subordinated Debt by reason of the conditions specified in Section 2.02
or 2.03 hereof would otherwise constitute such an Event of Default; or
(d) prevent the Subordinated Creditor from exercising all
remedies otherwise permitted by applicable law upon default under this
Agreement or the Subordinated Debt Document, subject to the rights, if
any, under this Section 2 of the Lenders (i) in any case, proceeding,
dissolution, liquidation or other winding up, assignment for the benefit
of creditors or other marshalling of assets and liabilities of such
Obligor referred to in Section 2.02 hereof, to receive, pursuant to and
in accordance with said Section 2.02, cash, property and securities
otherwise payable or deliverable to the Subordinated Creditor, or (ii)
under the conditions specified in Section 2.03 hereof, to prevent any
payment prohibited by said Section 2.03.
2.07 NO WAIVER OF SUBORDINATION PROVISIONS. No right of the Agent
or any Lender to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
any Obligor or by any act or failure to act, in good faith, by the Agent or any
Lender, or by any non-compliance by any Obligor with the terms, provisions and
covenants of this Agreement, regardless of any knowledge thereof the Agent or
any Lender may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing
paragraph, the Lenders may, at any time and from time to time, without the
consent of or notice to the Subordinated Creditor, without incurring
responsibility to the Subordinated Creditor and without impairing or releasing
the subordination provided in this Section 2 or the obligations hereunder of the
Subordinated Creditor to the holders of Senior Debt, do any one or more of the
following: (a) change the time, manner or place of payment of Senior Debt, or
otherwise modify or supplement in any respect any of the provisions of the
Credit Agreement or any other instrument evidencing or relating to any of the
Senior Debt; (b) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Debt; (c) release any Person
liable in any manner for the collection of Senior Debt; and (d) exercise or
refrain from exercising any rights against any Obligor and any other Person.
2.08 NOTICE TO SUBORDINATED CREDITOR. Each Obligor shall give
prompt written notice to the Subordinated Creditor of any fact known to such
Obligor that would prohibit the making of any payment to it in respect of the
Subordinated Debt. Notwithstanding the provisions of this Section 2 or any other
provision of this Agreement, the Subordinated Creditor shall not be charged with
knowledge of the existence of any facts that
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would prohibit the making of any payment to it in respect of the Subordinated
Debt, unless and until the Subordinated Creditor shall have received written
notice thereof from such Obligor or the Agent; and, prior to the receipt of any
such written notice, the Subordinated Creditor shall be entitled in all respects
to assume that no such facts exist.
2.09 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATION
AGENT. Upon any payment or distribution of assets of any Obligor referred to in
this Section 2, the Subordinated Creditor shall be entitled to rely upon any
order or decree entered by any court of competent jurisdiction in which such
insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution,
winding up or similar case or proceeding is pending, or a certificate of the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for
the benefit of creditors, agent or other Person making such payment or
distribution, delivered to the Subordinated Creditor, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Debt and other indebtedness of such Obligor,
the amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Section 2.
Section 3. REPRESENTATIONS AND WARRANTIES. Each party to this
Agreement represents and warrants to all the other parties:
3.01 CORPORATE EXISTENCE. It is a corporation, partnership or
other entity duly organized and validly existing under the laws of the
jurisdiction of its incorporation.
3.02 NO BREACH. None of the execution and delivery of this
Agreement, the consummation of the transactions herein contemplated or
compliance with the terms and provisions hereof will conflict with or result in
a breach of, or require any consent under, the charter, bylaws or partnership
agreement, as the case may be, of such party to this Agreement, any applicable
law or regulation, or any order, writ, injunction or decree of any court or
governmental authority or agency, or any agreement or instrument to which such
party to this Agreement is a party or by which any such party is subject to or
constitute a default under any such agreement or instrument, or result in the
creation or imposition of any Lien upon any of the revenues or assets of any
such party pursuant to the terms of any such agreement or instrument.
3.03 CORPORATE ACTION; EXECUTION AND DELIVERY. It has all
necessary corporate or partnership power and authority to execute, deliver and
perform its obligations under this Agreement; the execution, delivery and
performance by the Subordinated Creditor of this Agreement have been duly
authorized by all necessary action on its part; and this Agreement has been duly
and validly executed and delivered by such party constitutes the legal, valid
and binding obligation of such party, enforceable in accordance with its terms.
3.04 APPROVALS. No authorizations, approvals or consents of, and
no filings or registrations with, any governmental or regulatory authority or
agency are necessary for the execution, delivery or performance by any such
party to this Agreement or for the validity or enforceability hereof.
Section 4. MISCELLANEOUS.
4.01 NO WAIVER. No failure on the part of the Agent or any Lender
to exercise, and no course of dealing with respect to, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise by the Agent or any Lender of
any right, power or remedy hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. The remedies herein
are cumulative and are not exclusive of any remedies provided by law.
-5-
4.02 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York.
4.03 NOTICES. All notices, requests, consents and demands
hereunder shall be in writing and telexed, telecopied or delivered to the
intended recipient at the "Address for Notices" specified beneath its (or his or
her, as the case may be) name on the signature pages hereof or, as to any party,
at such other address as shall be designated by such party in a notice to each
other party. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by telex
or telecopier or personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as aforesaid.
4.04 WAIVERS, ETC. The terms of this Agreement may be waived,
altered or amended (as to a Subordinated Creditor) only by an instrument in
writing duly executed by the Subordinated Creditor and (as to the Agent and the
Lenders) by the Agent with the consent of the Lenders as specified in Section
11.10 of the Credit Agreement. Any such amendment or waiver shall be binding
upon the Agent and each Lender (and each other holder of Senior Debt) and the
Subordinated Creditor.
4.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the respective heirs, executors, administrators,
successors and assigns of the Subordinated Creditor and the Agent and each
Lender (and each other holder of Senior Debt).
4.06 CAPTIONS. The captions and section headings appearing herein
are included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.
4.07 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
-6-
IN WITNESS WHEREOF, the parties hereto have caused this
Subordination Agreement to be duly executed and delivered as of the day and year
first above written.
SUBORDINATED CREDITOR
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION
By /s/ DAVID BALESTRERY
---------------------------------
Title: Senior Associate
Address for Notices:
ING Capital
135 East 57th Street
New York, New York 10022-2101
Attention: New York Merchant Banking Group
Mr. David P. Scopelliti
Mr. David A. Balestrery
Telecopier No.: (212) 593-3362
Telephone No.: (212) 446-1955
COMPANY
CORNELL CORRECTIONS, INC.
By /s/ STEVEN W. LOGAN
---------------------------------
Title: Chief Financial Officer
Address for Notices:
Cornell Corrections, Inc.
4801 Woodway
Suite 400 West
Houston, Texas 77056
Attention: Mr. Steven W. Logan
Telecopier No.: (713) 623-2853
Telephone No.: (713) 623-0790
-7-
SUBSIDIARY GUARANTORS
CORNELL CORRECTIONS MANAGEMENT,
INC.
By /s/ STEVEN W. LOGAN
---------------------------------
Title: Chief Financial Officer
CORNELL CORRECTIONS CONSULTING, INC.
By /s/ STEVEN W. LOGAN
---------------------------------
Title: Chief Financial Officer
CORNELL CORRECTIONS OF
RHODE ISLAND, INC.
By /s/ STEVEN W. LOGAN
---------------------------------
Title: Chief Financial Officer
THE CORNELL COX GROUP, L.P.
By /s/ STEVEN W. LOGAN
---------------------------------
Title: Chief Financial Officer
CORNELL CORRECTIONS MANAGEMENT
OF NORTH AMERICA, INC.
By /s/ STEVEN W. LOGAN
---------------------------------
Title: Chief Financial Officer
CORNELL CORRECTIONS OF
TEXAS, INC.
By /s/ STEVEN W. LOGAN
---------------------------------
Title: Chief Financial Officer
-8-
CORNELL CORRECTIONS OF CALIFORNIA, INC.
By /s/ STEVEN W. LOGAN
---------------------------------
Title: Chief Financial Officer
INTERNATIONAL SELF-HELP SERVICES, INC.
By /s/ STEVEN W. LOGAN
---------------------------------
Title: Chief Financial Officer
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION,
as Agent
By /s/ DAVID BALESTRERY
---------------------------------
Title: Senior Associate
Address for Notices to
ING as Agent:
ING Capital
135 East 57th Street
New York, New York 10022-2101
Attention: New York Merchant Banking Group
Mr. David P. Scopelliti
Mr. David A. Balestrery
Telecopier No.: (212) 593-3362
Telephone No.: (212) 446-1955
-9-
EXHIBIT 10.27
EXTENSION AGREEMENT
EXTENSION AGREEMENT dated as of July 9, 1996 among
CORNELL CORRECTIONS, INC. (the "Company"), CONCORD PARTNERS II,
L.P. ("Concord") and CHARTERHOUSE EQUITY PARTNERS II, L.P. ("CEP").
Internationale Nederlanden (U.S.) Capital Corporation ("ING") is
the holder of a Convertible Subordinated Promissory Note of the Company dated of
even herewith (the "Note"). Pursuant to its terms, the Note will be converted
(the "Conversion") into shares of Class A Common Stock of the Company (the
"Class A Common Stock") on December 30, 1996 (unless sooner converted in
accordance with its terms). In connection with the Conversion, the Company,
Concord, CEP and ING entered into a Put Agreement, dated of even date herewith
(the "Put Agreement") pursuant to which Concord and Dillon are obligated to
purchase the shares of Class A Common Stock acquired in the Conversion and ING
is obligated to exercise its right to require such purchase.
In the event ING determines to extend the date of Conversion
beyond December 30, 1996, each of Concord and CEP hereby agrees to such
extension and to a coterminous deferral of
1
its rights and obligations under the Put Agreement; PROVIDED, HOWEVER, that in
no event may such extension or deferral extend beyond March 31, 1997.
In consideration for the foregoing agreement, the Company hereby
grants to each of Concord and CEP options (in substantially the form annexed
hereto as EXHIBIT 1) to purchase that number or shares of Class B Common Stock
of the Company (the "Class B Common Stock") calculated as set forth in the
immediately following sentence, at an exercise price of $2.82 per share (the
"Exercise Price"). The number of shares of Class B Common Stock covered by the
Concord options shall equal the product of (i) 15,055 and (ii) the number of
calendar months (with any portion of a month being deemed a whole month) for
which ING has determined to extend the date of conversion (but in no event more
than three) and the number of shares of Class B Common Stock covered by the CEP
options shall equal the product of (i) 10,037 and (ii) the number of calendar
months (with any portion of a month being deemed a whole month) for which ING
has determined to extend the date of conversion (but in no event more than
three).
2
In the event the Company effects a subdivision or consolidation
of shares or other capital adjustment, the payment of a stock dividend, or other
issuance of shares without fair consideration, the aggregate number of shares
which may be purchased pursuant to the options and the Exercise Price shall be
proportionally adjusted.
Each of the Company, Concord and CEP agree that ING shall be a
third party beneficiary of this Extension Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Extension Agreement on the day and year first above written.
CORNELL CORRECTIONS, INC.
By: /S/ STEVEN W. LOGAN
Title: Chief Financial Officer
CONCORD PARTNERS II, L.P.
By: /S/ PETER A. LEIDEL
CHARTERHOUSE EQUITY PARTNERS II, L.P.
BY: CHUSA Equity Investors II, L.P.
General Partner
By: Charterhouse Equity II, Inc.,
General Partner
By:/S/ RICHARD T. HENSHAW III
Title: Senior Vice President
3
EXHIBIT 10.28
EXECUTION COPY
WARRANT ISSUANCE AGREEMENT
Dated as of July 3, 1996
between
CORNELL CORRECTIONS, INC.
and
INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS..................................... 1
SECTION 1.2. INTERPRETATION.................................. 12
ARTICLE II
ISSUANCE OF WARRANT; CLOSING
SECTION 2.1. ISSUANCE OF WARRANT............................. 12
SECTION 2.2. CLOSING......................................... 12
ARTICLE III
FORM; EXCHANGE FOR WARRANTS; TRANSFER; TAXES
SECTION 3.1. FORM OF WARRANT................................. 12
SECTION 3.2. EXCHANGE OF WARRANTS FOR WARRANTS............... 13
SECTION 3.3. TRANSFER OF WARRANT............................. 14
ARTICLE IV
EXERCISE OF WARRANT; EXCHANGE FOR WARRANT SHARES
SECTION 4.1. EXERCISE OF WARRANTS............................ 15
SECTION 4.2. EXCHANGE FOR WARRANT SHARES..................... 15
SECTION 4.3. ISSUANCE OF COMMON STOCK........................ 16
SECTION 4.4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF
WARRANT SHARES............................. 17
SECTION 4.4.1. ADJUSTMENT UPON ISSUANCE OF COMMON STOCK...... 17
SECTION 4.4.2. SUBDIVISIONS OR COMBINATIONS OF COMMON
STOCK....................................... 20
SECTION 4.4.3. CAPITAL REORGANIZATION OR CAPITAL
RECLASSIFICATIONS.............................. 21
SECTION 4.4.4. CONSOLIDATIONS AND MERGERS.................... 21
SECTION 4.4.5. NOTICE; CALCULATIONS; ETC..................... 21
SECTION 4.4.6. CERTAIN ADJUSTMENTS........................... 22
SECTION 4.4.7. EXCLUDED TRANSACTIONS......................... 22
SECTION 4.4.8. ADJUSTMENT RULES.............................. 22
SECTION 4.5. REGULATED HOLDERS............................. 23
ARTICLE V
CERTAIN OTHER RIGHTS
SECTION 5.1. PAYMENTS IN RESPECT OF DIVIDENDS AND
DISTRIBUTIONS................................. 23
SECTION 5.2. CALL RIGHTS..................................... 24
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.1. REPRESENTATIONS AND WARRANTIES OF ING........... 26
SECTION 6.2. REPRESENTATIONS AND WARRANTIES OF THE
CORPORATION.......................................... 26
(a) ORGANIZATION.................................... 26
CONSENTS OR APPROVALS....................... 26
(c) ENFORCEABILITY.................................. 27
(d) CAPITALIZATION.................................. 27
(e) ORGANIZATIONAL DOCUMENTS........................ 28
(f) CREDIT AGREEMENT................................ 28
ARTICLE VII
COVENANTS OF THE CORPORATION
SECTION 7.1. NOTICES OF CERTAIN ACTIONS...................... 28
SECTION 7.2. FINANCIAL STATEMENTS AND REPORTS................ 29
SECTION 7.3. INFORMATION RIGHTS.............................. 30
SECTION 7.4. REGULATED HOLDERS............................... 30
SECTION 7.5. MERGER OR CONSOLIDATION OF THE CORPORATION...... 32
SECTION 7.6. RESERVATION OF SHARES........................... 32
SECTION 7.7. CURRENT PUBLIC INFORMATION...................... 32
SECTION 7.8. PUBLIC DISCLOSURES.............................. 33
SECTION 7.9. FIDUCIARY DUTIES OF THE CORPORATION............. 33
SECTION 7.10. TRANSACTIONS WITH AFFILIATES.................... 33
SECTION 7.11. OPINION OF COUNSEL.............................. 33
SECTION 7.12. CORPORATE ASSURANCES............................ 33
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. NOTICES......................................... 34
SECTION 8.2. NO VOTING RIGHTS; LIMITATIONS OF LIABILITY...... 35
SECTION 8.3. AMENDMENTS AND WAIVERS.......................... 35
SECTION 8.4. SEVERABILITY.................................... 35
SECTION 8.5. SPECIFIC PERFORMANCE............................ 35
SECTION 8.6. BINDING EFFECT.................................. 35
SECTION 8.7. COUNTERPARTS.................................... 35
SECTION 8.8. GOVERNING LAW; ENTIRE AGREEMENT................. 36
SECTION 8.9. BENEFITS OF THIS AGREEMENT...................... 36
SECTION 8.10. HEADINGS........................................ 36
SECTION 8.11. EXPENSES........................................ 36
SECTION 8.12. ATTORNEYS' FEES................................. 36
SECTION 8.13. OTHER TRANSACTIONS.............................. 36
SECTION 8.14. FORUM SELECTION AND CONSENT TO JURISDICTION..... 37
SECTION 8.15. REGISTRATION RIGHTS............................ 37
SECTION 8.16. WAIVER OF JURY TRIAL........................... 37
SECTION 8.17. INDEMNIFICATION................................ 37
SECTION 8.18. FILINGS........................................ 38
<PAGE>
WARRANT ISSUANCE AGREEMENT, dated as of July 3, 1996, between CORNELL
CORRECTIONS, INC., a Delaware corporation (the "Corporation" or the "Borrower"),
and INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, a Delaware
corporation ("ING").
The parties to this Agreement hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings:
"AFFILIATE" shall mean, with respect to any Person, any Person that
directly or indirectly through one or more intermediaries Controls, is
Controlled by or is under common Control with such Person.
"ALLOCABLE NUMBER" shall have the meaning given to such term in
Section 4.2.
"APPLICABLE LAW" shall mean all provisions of laws, statutes,
ordinances, rules, regulations, permits, certificates or orders of any
Governmental Authority applicable to the Person in question or any of its assets
or property, and all judgments, injunctions, orders and decrees of all courts
and arbitrators in proceedings or actions in which the Person in question is a
party or by which any of its assets or properties are bound.
"ASSIGNMENT FORM" shall mean the assignment form attached as Annex C
to a Warrant.
"BORROWER" shall have the meaning given to such term in
the preamble.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or a
day on which banks are authorized or required to be closed in New York, New
York; PROVIDED, HOWEVER, that any determination of a Business Day relating to a
securities
-1-
exchange shall mean a Business Day on which such exchange is open for trading.
"CHARTERHOUSE" shall mean Charterhouse Group International Inc. and
any entity controlled by Charterhouse Group International Inc. As used in this
definition, "CONTROLLED BY" shall mean the possession, directly or indirectly,
of power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise).
"CLASS A COMMON STOCK" shall mean the Class A Common Stock, $.01 par
value, of the Corporation having the terms, conditions, rights and limitations
described in EXHIBIT A hereto.
"CLASS B COMMON STOCK" shall mean the Class B Common Stock, $.01 par
value, of the Corporation having the terms, conditions, rights and limitations
described in EXHIBIT A hereto.
"CLOSING" shall have the meaning given to such term in
Section 2.2.
"CLOSING DATE" shall have the meaning given to such term in Section
2.2.
"COMMISSION" shall mean the Securities and Exchange
Commission (or a successor thereto).
"COMMON STOCK" shall mean the Class A Common Stock and
the Class B Common Stock.
"CONTROL" shall mean, with respect to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"CORPORATION" shall have the meaning given to such term
in the Preamble.
"CONVERTIBLE SECURITIES" shall have the meaning given to such term in
Section 4.4.1(b).
-2-
"CREDIT AGREEMENT" shall mean the Amended and Restated Credit
Agreement (as the same may be amended or otherwise modified from time to time),
dated the Closing Date, among the Corporation, the Subsidiary Guarantors (as
defined therein), ING, the other financial institutions appearing on the
signature pages thereto, and ING, as agent.
"DELIVERY DATE" shall have the meaning given to such term in Section
4.3(a).
"DILLON READ" shall mean Dillon Read & Co., Inc. and any entity for
which Dillon Read & Co., Inc. serves as an investment manager or for which it
has investment discretion.
"EQUIVALENT NONVOTING SECURITY", with respect to any security (a
"first security") issued or to be issued by any Person, shall mean a security
(an "equivalent security") of such Person that is identical in rights and
benefits to such first security, except that (a) the equivalent security shall
not be entitled to vote on any matter on which holders of voting securities of
such Person are entitled to vote, other than as required by Applicable Law or
with respect to any amendment or repeal of any provision of the Organizational
Documents of such Person or any other agreement or instrument pursuant to which
the equivalent security was issued which provision specifically affects such
equivalent security, (b) subject to such reasonable restrictions as any affected
Regulated Holder may request (including, without limitation, any restriction
necessary to prevent the violation by such Regulated Holder of any provision of
Applicable Law with respect to its Ownership of voting securities), the
equivalent security shall be convertible in a one-to-one ratio into the first
security and (c) the terms of the equivalent security shall include such
provisions requested by any affected Regulated Holder as are reasonable and
equitable to ensure that (i) the equivalent security is treated comparably to
the first security with respect to dividends, distributions, stock splits,
reclassifications, capital reorganizations, mergers, consolidations and other
similar events and transactions, (ii) the conversion right provided in clause
(b) above is equitably protected and (iii) the acquisition of the equivalent
security will not cause such Regulated Holder to violate Applicable Law.
-3-
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXCHANGE FORM" shall mean the exchange form attached as Annex B to a
Warrant.
"EXCLUDED SECURITIES" shall mean:
(i) shares of capital stock issued pursuant to a stock dividend or a
stock split or other subdivision of shares;
(ii) Common Stock issued upon (A) conversion or exercise of any of
the Corporation's convertible preferred stock outstanding at the Closing Date,
or (B) exercise of the Warrants;
(iii) securities issued by the Corporation in a
Qualified Public Offering;
(iv) securities issued pursuant to the direct or indirect BONA FIDE
acquisition by the Corporation of any Person, whether by merger, purchase of
stock, purchase of assets or otherwise;
(v) securities issued upon exercise of conversion or exchange rights,
options or subscription calls, warrants, commitments or claims, provided that
the foregoing are outstanding on the date hereof or are issued hereafter in
compliance with Section 6 of the Stockholders Agreement hereof; and
(vi) Common Stock or options to purchase Common Stock issued to
directors, officers, employees or consultants of the Corporation or the issuance
of Common Stock upon the exercise of any such options; PROVIDED, HOWEVER, that
(x) such Common Stock or options shall be issued pursuant to a written agreement
in form and substance satisfactory to the Requisite Holders and (y) the
aggregate amount of all such Common Stock or Common Stock which may be acquired
upon the exercise of such options shall not exceed an aggregate of 20% of the
Common Stock (on a Fully- Diluted Basis).
-4-
"EXECUTIVE OFFICER" shall mean, with respect to the Corporation, its
Chairman or President.
"EXERCISE FORM" shall mean the exercise form attached as Annex A to a
Warrant.
"EXERCISE PRICE" shall mean $2.82 per share of Common Stock, subject
to adjustment from time to time in the manner provided in Section 4.4.
"EXPIRATION DATE" shall mean the seven year anniversary of the
Closing Date.
"FINANCIAL OFFICER" shall mean the Chief Financial Officer, Treasurer
or Assistant Treasurer of the Corporation.
"FISCAL YEAR" shall mean, with respect to the Corporation, the
one-year period ending on December 31 of any year.
"FULLY DILUTED BASIS" means, as applied to the calculation of the
number of shares of Common Stock outstanding at any time, after giving effect to
(a) all shares of Common Stock outstanding at the time of determination, (b) all
shares of Common Stock issuable upon the exercise of any option, warrant
(including the Warrants) or similar right to purchase Common Stock outstanding
at the time of determination and then exercisable at a per share price equal to
or less than the price per share of Common Stock being determined and (c) all
shares of Common Stock issuable upon the conversion or exchange of any security
convertible into or exchangeable for shares of Common Stock outstanding at the
time of determination and then so convertible or exchangeable at a conversion or
exchange price equal to or less than the price per share of Common Stock being
determined. Such calculation will not be made in accordance with the "treasury
method."
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
-5-
"GOVERNMENTAL AUTHORITY" shall mean any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case whether of the United States of
America or foreign.
"HOLDER" shall have the meaning given to such term in Section 3.1(c).
"ING" shall have the meaning given to such term in the
Preamble.
"LIQUIDATION EQUIVALENT" shall mean the per share cash amount,
determined in accordance with the Valuation Procedure, which would be paid to
holders of Common Stock outstanding (on a Fully-Diluted Basis) on the date of
determination assuming (a) the actual receipt by the Corporation or Major
Stockholder, as applicable, of the full amount of the consideration proposed to
be paid or exchanged for the capital stock or assets of the Corporation in the
relevant transaction (net of reasonable expenses incurred in connection with
such transaction which are payable to Persons who or which are not Affiliates of
Major Stockholder) and (b) the liquidation of the Corporation and all of its
Subsidiaries immediately thereafter. For the purposes of determining the
Liquidation Value, (i) the exercise price of options or warrants to acquire
Common Stock which are deemed to have been exercised for the purpose of
determining the number of shares of Common Stock outstanding on a fully Diluted
Basis, shall be deemed to have been received by the Corporation, (ii) the
liquidation preference or indebtedness, as the case may be, represented by
securities which are deemed exercised for or converted into Common Stock for the
purpose of determining the number of shares of Common Stock outstanding on a
Fully Diluted Basis, shall be deemed to have been eliminated or cancelled and
(iii) any limitation in respect of any class of shares of Common Stock,
including as to transfer, payments of dividends, voting and other rights shall
be deemed to have been eliminated or cancelled. If any transaction requiring the
determination and payment of the Liquidation Equivalent shall involve a purchase
price adjustment based on the closing balance sheet of the Corporation or any of
its Subsidiaries as of the closing date of such transaction, which results in a
reduction in the purchase price, each Holder shall be obligated to remit to the
purchaser
-6-
such Holder's PRO RATA share of such amount, unless the amount of such
adjustment has not been finally determined within 180 days following the closing
of such transaction, in which case each Holder shall be obligated to remit to
such purchaser the lesser of (x) such Holder's PRO RATA share of the amount of
such adjustment (as finally determined) or (y) an amount equal to 5% of the
aggregate net proceeds received by such Holder at such closing. Each Holder
shall be entitled to receive its full PRO RATA share of any adjustment in favor
of the sellers in a transaction involving a purchase price adjustment when and
as paid to all such Holders.
"MAJOR STOCKHOLDER" shall mean collectively Charterhouse and Dillon
Read and any reference herein to "Major Stockholder" refers to Charterhouse and
Dillon Read together as if they were one entity.
"MARKET PRICE" shall mean, with respect to a share of Common Stock on
any Business Day:
(a) if the Common Stock is Publicly Traded at the time of
determination, the average of the closing prices for the Common Stock on
all domestic securities exchanges on which such security may at the time
be listed, or, if there have been no sales on any such exchange on such
day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day such security is not
so listed, the average of the representative bid and asked prices quoted
on the NASDAQ System as of 4:00 P.M., New York time, on such day, or if on
any day such security is not quoted in the NASDAQ System, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case
averaged over a period of twenty-one (21) days consisting of the day as of
which "Market Price" is being determined and the twenty (20) consecutive
Business Days prior to such day; provided, however, that after a Qualified
Public Offering, if the determination of Market Price is being made for
purposes of Article IV as a result of the issuance of Common Stock
pursuant to a registered, underwritten, publicly
-7-
distributed offering, then the Market Price will, for purposes of Article
IV, be the price to the public in connection with that public offering; or
(b) if the Common Stock is not Publicly Traded at the time of
determination, for the purposes of Article 4 only, the fair value of one
share of Common Stock, determined in good faith by the Board of Directors
of the Corporation exercising reasonable business judgment; PROVIDED,
HOWEVER, if the Common Stock is not Publicly Traded at the time of
determination for all other purposes, the Market Price shall be the Market
Value Per Share.
"MARKET VALUE" shall mean the highest price that would be paid for
the entire common equity interest in the Corporation on a going-concern basis in
a single arm's-length transaction between a willing buyer and a willing seller
(neither acting under compulsion), using valuation techniques then prevailing in
the securities industry and always determined in accordance with the Valuation
Procedures, and assuming full disclosure and understanding of all relevant
information and a reasonable period of time for effectuating such sale. For the
purposes of determining the Market Value, (i) the exercise price of options or
warrants to acquire Common Stock which are deemed to have been exercised for the
purpose of determining the number of shares of Common Stock outstanding on a
Fully Diluted Basis, shall be deemed to have been received by the Corporation,
(ii) the liquidation preference or indebtedness, as the case may be, represented
by securities which are deemed exercised for or converted into Common Stock for
the purpose of determining the number of shares of Common Stock outstanding on a
Fully Diluted Basis, (iii) any limitation in respect of any shares of Common
Stock, including as to their transfer, dividend payments, voting and other
rights and (iv) any illiquidity arising by contract law in respect of the shares
of Common Stock and any voting rights or control rights amongst the
Stockholders, shall be deemed to have been eliminated or cancelled.
"MARKET VALUE PER SHARE" shall mean the price per share of Common
Stock obtained by dividing (A) the Market Value by (B) the number of shares of
Common Stock outstanding (on a Fully- Diluted Basis) at the time of
determination.
-8-
"NASDAQ" shall mean the NASDAQ National Market or the NASDAQ Smallcap
Market.
"OPTIONS" shall have the meaning given to such term in Section
4.4.1(b) hereof.
"ORGANIZATIONAL DOCUMENTS" shall mean, with respect to any Person,
each instrument or other document that (a) defines the existence of such Person,
including its articles or certificate of incorporation, as filed or recorded
with an applicable Governmental Authority or (b) governs the internal affairs of
such Person, including its by-laws, in each case as amended, supplemented or
restated.
"OTHER ANTI-DILUTION INSTRUMENTS" shall mean any option, warrant,
convertible security or other rights to acquire Common Stock, whether
outstanding as of the date hereof or hereafter issued, together with any
agreements relating thereto, which provide for anti-dilution or other
adjustments in the number of shares of Common Stock and/or exercise or
conversion price.
"OWN" shall mean, with respect to any security, to own, hold or
Control. "OWNS" and "OWNERSHIP" shall have correlative meanings.
"PERSON" shall mean and include any natural person, company,
partnership, joint venture, corporation, business trust or unincorporated
organization.
"PROPORTIONATE PERCENTAGE" shall mean, with respect to any Holder at
any time, the quotient obtained by dividing (a) the aggregate number of Warrant
Shares then held by such Holder by (b) the total number of shares of Common
Stock then outstanding (on a Fully-Diluted Basis).
"PUBLICLY TRADED" shall mean, with respect to any security, that such
security is (a) listed on a domestic securities exchange, (b) quoted on NASDAQ
or (c) traded in the domestic over-the-counter market, which trades are reported
by the National Quotation Bureau, Incorporated.
-9-
"QUALIFIED PUBLIC OFFERING" shall mean an underwritten public
offering of the Common Stock registered under the Securities Act, (a) which
offering results in net proceeds to the Corporation of at least $10,000,000, and
(b) after which the shares of Common Stock are Publicly Traded.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights
Agreement, dated as of March 31, 1994, as amended by Amendment No. 1 thereto,
dated as of March 14, 1995, and as amended by Amendment No. 2 thereto, dated as
of the date hereof, among the Corporation, the Investors (as defined therein)
party thereto, David Cornell and ING.
"REGULATED HOLDER" shall mean any Holder subject to any provisions of
Applicable Law (including without limitation the Bank Holding Company Act of
1956, as amended, (12 U.S.C. ss. 1841 ET SEQ.) and the regulations promulgated
thereunder) limiting the quantity or kind of securities (or any class thereof)
of the Corporation which such Holder is permitted to Own.
"REQUISITE HOLDERS" shall mean Holders holding Warrants or Warrant
Shares representing at least a majority of all Warrant Shares issued or issuable
upon exercise of Warrants outstanding on the date of determination.
"SECTION 7.4 TRANSACTION" shall have the meaning given to such term
in Section 7.4.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
"SELLER NOTES" shall mean promissory notes issued by a transferee (or
an Affiliate thereof) as consideration in connection with any Transfer of stock
and/or other assets.
"STOCKHOLDERS AGREEMENT" shall mean the Amended and Restated
Stockholders Agreement, dated as of March 14, 1995, among the Corporation, the
Investors (as defined therein) party thereto, David Cornell and ING.
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"SUBSIDIARY" shall mean, at any time, any Person of which more than
fifty percent (50%) of the shares of stock or other interests entitled to vote
in the election of directors or comparable Persons performing similar functions
(excluding shares or other interests entitled to vote only upon the failure to
pay dividends thereon or other contingencies) are at the time owned directly or
indirectly through one or more Subsidiaries, by the Corporation.
"TRANSFER" shall mean any sale, transfer, assignment, or other
disposition of any interest in, with or without consideration, any security
(other than a pledge or hypothecation).
"VALUATION PROCEDURE" shall mean, with respect to the determination
of any amount or value required to be determined in accordance with such
procedure, a determination (which shall be final and binding on the Corporation
and the Holders) made (i) by agreement among the Corporation and the Requisite
Holders within thirty (30) days following the event requiring such determination
or (ii) in the absence of such an agreement, by an Appraiser (as defined below)
selected in accordance with the further provisions of this definition. If
required, an Appraiser shall be selected within 10 days following the expiration
of the 30-day period referred to above, either by agreement among the
Corporation and the Requisite Holders or, in the absence of such agreement, by
lot from a list of four potential Appraisers remaining after the Corporation
nominates three, the Requisite Holders nominate three, and each side eliminates
one potential Appraiser. The Appraiser shall be instructed by the Corporation
and the Requisite Holders to make its determination within twenty (20) days of
its selection. The fees and expenses of an Appraiser selected hereunder shall be
borne by the Corporation. As used herein, "Appraiser" shall mean (a) with
respect to a determination of Market Value, a nationally-recognized investment
banking firm and (b) with respect to a determination of Liquidation Value (or
any other valuation required hereunder), a firm of the type generally considered
to be qualified in making determinations of the type required.
"WARRANT" shall have the meaning given to such term in Section
3.1(a).
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"WARRANT REGISTER" shall have the meaning given to such term in
Section 3.1(c).
"WARRANT SHARES" shall mean (a) the shares of Common Stock issued or
issuable upon exercise of a Warrant in accordance with Section 4.1 or upon
exchange of a Warrant in accordance with Section 4.2, (b) all other securities
or other property issued or issuable upon any such exercise or exchange in
accordance with this Agreement and (c) any securities of the Corporation
distributed with respect to the securities referred to in the preceding clauses
(a) and (b). As used in this Agreement, the phrase "Warrant Shares then held" by
any Holder or Holders shall mean Warrant Shares held at the time of
determination by such Holder or Holders, and shall include Warrant Shares
issuable upon exercise of Warrants held at the time of determination by such
Holder or Holders.
SECTION 1.2. INTERPRETATION. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular, to
the singular include the plural, and to the part include the whole. The term
"including" is not limiting and the term "or" has the inclusive meaning
represented by the term "and/or." The words "hereof," "herein," "hereunder," and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. References to "Articles",
"Sections," "Exhibits" and "Schedules" are to Articles, Sections and Schedules,
respectively, of this Agreement, unless otherwise specifically provided. Terms
defined herein may be used in the singular or the plural.
ARTICLE II
ISSUANCE OF WARRANT; CLOSING
SECTION 2.1. ISSUANCE OF WARRANT. On the Closing Date, the
Corporation hereby agrees to issue a Warrant registered in the name of ING
evidencing the right to purchase, on or before 5:00 p.m. on the Expiration Date,
a total of 264,000 shares of Class B Common Stock of the Corporation at a price
per share equal to the Exercise Price. At the date hereof, such shares of Class
B Common Stock represent 10.0% of the outstanding shares of
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Common Stock and 6.4% of the outstanding shares of Common Stock on a fully
diluted basis (which determination will (a) assume the exercise of all
outstanding Options or Convertible Securities, whether or not currently
exercisable or convertible, and irrespective of the exercise or conversion price
and other related terms, and (b) not be made in accordance with the "treasury
method"). The number of Warrant Shares which may be purchased upon exercise of
such Warrant and the Exercise Price to be paid for such Warrant Shares are
subject to adjustment in the manner provided in Article IV.
SECTION 2.2. CLOSING. The closing (the "Closing") for the issuance,
sale and transfer of the Warrant shall take place simultaneously with the
execution and delivery of this Agreement on the date (the "Closing Date")
hereof.
ARTICLE III
FORM; EXCHANGE FOR WARRANTS; TRANSFER; TAXES
SECTION 3.1. FORM OF WARRANT. (a) Each Warrant issued hereunder shall
be in the form of Exhibit B (each, a "Warrant") and shall be executed on behalf
of the Corporation by an Executive Officer and attested to by a Financial
Officer. The signature of any officer on any Warrant may be manual or facsimile.
Upon initial issuance, each Warrant shall be dated as of the date of
counter-signature thereof by the Corporation.
(b) Each Warrant and each certificate representing Warrant
Shares shall include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND STATE SECURITIES LAWS AND MAY NOT BE
SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EXEMPTION FROM, OR OTHERWISE IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF SUCH ACT.
IN ADDITION, THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE
LIMITATIONS ON TRANSFER SET FORTH IN THE WARRANT ISSUANCE AGREEMENT DATED
AS OF JULY 3, 1996, BETWEEN THE CORPORATION AND INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION. A COPY OF THE WARRANT ISSUANCE AGREEMENT IS
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AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE CORPORATION AND
WILL BE FURNISHED WITHOUT CHARGE TO THE RECORD HOLDER HEREOF UPON WRITTEN
REQUEST TO THE CORPORATION.
(c) Each Warrant issued, exchanged or transferred hereunder
shall be registered in a warrant register (the "Warrant Register"). The Warrant
Register shall set forth the number of each Warrant, the name and address of the
holder (a "Holder") thereof, and the original number of Warrant Shares
purchasable upon the exercise thereof. The Warrant Register will be maintained
by the Corporation and will be available for inspection by any Holder at the
principal office of the Corporation or such other location as the Corporation
may designate to the Holders in the manner set forth in Section 8.1. The
Corporation shall be entitled to treat the Holder of any Warrant as the owner in
fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Warrant on the part of any other person.
The Corporation shall not be liable for complying with a request by a fiduciary
or nominee of a fiduciary to register a transfer of any Warrant which is
registered in the name of such fiduciary or nominee, unless made with the actual
knowledge that such fiduciary or nominee is committing a breach of trust in
requesting such registration of transfer, or with knowledge of such facts that
the Corporation's participation therein amounts to bad faith.
SECTION 3.2. EXCHANGE OF WARRANTS FOR WARRANTS. (a) The Holder may
exchange any Warrant issued hereunder for another Warrant or Warrants of like
kind and tenor representing in the aggregate the right to purchase the same
number of Warrant Shares which could be purchased pursuant to the Warrant being
so exchanged. In order to effect an exchange permitted by this Section 3.2, the
Holder shall deliver to the Corporation such Warrant accompanied by a written
request signed by the Holder thereof specifying the number and denominations of
Warrants to be issued in such exchange and the names in which such Warrants are
to be issued. Within ten (10) Business Days of receipt of such a request, the
Corporation shall issue, register and deliver to the Holder thereof each Warrant
to be issued in such exchange.
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(b) Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the Holder being satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any Warrant, and in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Corporation (if the Holder is a creditworthy financial
institution or other creditworthy institutional investor its own agreement being
satisfactory) or, in the case of any such mutilation, upon surrender of such
Warrant, the Corporation shall (at its expense) execute and deliver in lieu of
such Warrant a new Warrant of like kind representing the same rights represented
by and dated the date of such lost, stolen, destroyed or mutilated Warrant. Any
such new Warrant shall constitute an original contractual obligation of the
Corporation, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant shall be at any time enforceable by any Person.
(c) The Corporation shall pay all taxes (other than any
applicable income or similar taxes payable by a Holder of a Warrant)
attributable to an exchange of a Warrant pursuant to this Section 3.2; PROVIDED,
HOWEVER, that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance of any Warrant in a
name other than that of the Holder of the Warrant being exchanged.
SECTION 3.3. TRANSFER OF WARRANT. (a) Subject to Section 3.3(c)
hereof, each Warrant may be transferred by the Holder thereof by delivering to
the Corporation such Warrant accompanied by a properly completed Assignment
Form. Within ten (10) Business Days of receipt of such Assignment Form the
Corporation shall issue, register and deliver to the Holder, subject to Section
3(c) thereof a new Warrant or Warrants of like kind and tenor representing in
the aggregate the right to purchase the same number of Warrant Shares which
could be purchased pursuant to the Warrant being transferred. In all cases of
transfer by an attorney, the original power of attorney, duly approved, or a
copy thereof, duly certified, shall be deposited and remain with the
Corporation. In case of transfer by executors, administrators, guardians or
other legal representatives, duly authenticated evidence of their authority
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shall be produced and may be required to be deposited and remain with the
Corporation in its discretion.
(b) Each Warrant issued in accordance with this Section 3.3
shall bear the restrictive legend set forth in Section 3.1(b), unless the Holder
or transferee thereof supplies to the Corporation an opinion of counsel,
reasonably satisfactory to the Corporation, that the restrictions described in
such legend are no longer applicable to such Warrant.
(c) The transfer of Warrants and Warrant Shares shall be
permitted, so long as such transfer is pursuant to a transaction that complies
with, or is exempt from, the provisions of the Securities Act, and the
Corporation may require an opinion of counsel (which may be internal counsel to
a Holder) in form and substance reasonably satisfactory to it to such effect
prior to effecting any transfer of Warrants or Warrant Shares; PROVIDED,
HOWEVER, that prior to the filing by the Corporation of a registration statement
with the Securities and Exchange Commission pursuant to the requirements of
either the Securities Act or the Securities Exchange Act, ING shall not Transfer
to any Person (other than an Affiliate of ING) Warrants or Warrant Shares
representing less than 25% of the Warrant Shares (issued or represented by
outstanding Warrants) held by ING as of the Closing Date, except with the prior
consent of the Corporation.
ARTICLE IV
EXERCISE OF WARRANT; EXCHANGE FOR WARRANT SHARES
SECTION 4.1. EXERCISE OF WARRANTS. On any Business Day prior to the
Expiration Date, a Holder may exercise a Warrant, in whole or in part, by
delivering to the Corporation such Warrant accompanied by a properly completed
Exercise Form and a check in an aggregate amount equal to the product obtained
by multiplying (a) the Exercise Price by (b) the number of Warrant Shares being
purchased; PROVIDED, HOWEVER, that in lieu of paying the applicable Exercise
Price therefor, the Holder may elect to receive that number of Warrant Shares
which is equal to the number of shares for which this Warrant is being exercised
less the number of shares having a Market Value equal to such
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applicable Exercise Price, where such Market Value per Share shall be equal to
the price per share at which the Holder is selling Warrant Shares. Any partial
exercise of a Warrant shall be for a whole number of Warrant Shares only.
SECTION 4.2. EXCHANGE FOR WARRANT SHARES. On any Business Day prior
to the Expiration Date, a Holder may exchange a Warrant, in whole or in part,
for Warrant Shares by delivering to the Corporation such Warrant accompanied by
a properly completed Exchange Form. The number of shares of Common Stock to be
received by a Holder upon such exchange shall be equal to (a) the number of
Warrant Shares allocable to the portion of the Warrant being exchanged (the
"Allocable Number"), as specified by such Holder in the Exchange Form less (b)
the number of shares equal to the quotient obtained by dividing (i) the product
obtained by multiplying (A) the Exercise Price by (B) the Allocable Number of
Warrant Shares by (ii) the Market Price as of the close of business on the date
of delivery of the Exchange Form. The Allocable Number need not be a whole
number.
SECTION 4.3. ISSUANCE OF COMMON STOCK. (a) Within ten (10) Business
Days following the delivery date (the "Delivery Date") of (i) an Exercise Form
or Exchange Form in accordance with Section 4.1 or 4.2, (ii) a Warrant and (iii)
any required payments of the Exercise Price, the Corporation shall issue and
deliver to the Holder a certificate or certificates, registered in the name or
names set forth on such notice, representing the Warrant Shares being purchased
or to be received upon such exchange.
(b) If a Holder shall exercise or exchange a Warrant for less
than all of the Warrant Shares which could be purchased or received thereunder,
the Corporation shall issue to the Holder, within ten (10) Business Days of the
Delivery Date, a new Warrant evidencing the right to purchase the remaining
Warrant Shares. In the case of an exchange pursuant to Section 4.2, the number
of remaining Warrant Shares shall be the original number of Warrant Shares
subject to the Warrant so exchanged reduced by the Allocable Number of Warrant
Shares. Each Warrant surrendered pursuant to Section 4.1 or 4.2 shall be
canceled.
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(c) The Corporation shall not be required to issue fractional
shares of Common Stock upon the exercise or exchange of a Warrant. If any
fraction of a share of Common Stock would be issuable on the exercise or
exchange of any Warrant, the Corporation may, in lieu of issuing such fractional
share, pay to such Holder for any such fraction of a share an amount in cash
equal to the product obtained by multiplying (i) such fraction by (ii) the
Market Price in effect on the Delivery Date.
(d) The Corporation shall pay all taxes (other than any
applicable income or similar taxes payable by a Holder of a Warrant)
attributable to the initial issuance of Warrant Shares upon the exercise or
exchange of a Warrant; PROVIDED, HOWEVER, that the Corporation shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance of any Warrant or any certificate for Warrant Shares in a name
other than that of the Holder of the Warrant being exercised or exchanged.
(e) If permitted by Applicable Law, the person in whose name any
certificate for shares of Common Stock is issued upon exercise or exchange of a
Warrant shall for all purposes be deemed to have become the holder of record of
such shares on the Delivery Date, irrespective of the date of delivery of such
certificate, except that, if the Delivery Date is a date when the stock transfer
books of the Corporation are closed, such person shall be deemed to have become
the holder of record of such shares at the close of business on the next
succeeding date on which the stock transfer books are open.
(f) If any shares of Common Stock required to be reserved for
purposes of the exercise or exchange of a Warrant require registration or
approval under any Applicable Law, the Corporation will in good faith and as
expeditiously as possible cause such shares to be registered or seek such
approval, as applicable. The Corporation may suspend the exercise of any Warrant
so affected for the period during which such registration or approval is
required but not in effect.
(g) Any Exercise Form or Exchange Form delivered under Section 4.1 or 4.2
may condition the exercise or exchange
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of any Warrant on the consummation of a sale contemplated by Section 5.2 hereof,
a "tag-along" sale contemplated by Section 5 of the Stockholders Agreement, or
on the consummation of a sale of Warrant Shares pursuant to a public offering
registered under the Securities Act, and such exercise or exchange shall not be
deemed to have occurred except concurrently with the consummation of any such
sale.
SECTION 4.4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT
SHARES. The number and kind of Warrant Shares purchasable upon exercise of each
Warrant shall be subject to adjustment from time to time in accordance with this
Section 4.4.
SECTION 4.4.1. ADJUSTMENT UPON ISSUANCE OF COMMON STOCK. (a) If, at
any time after the Closing Date, the Corporation shall issue or sell (or, in
accordance with Section 4.4.1(b), shall be deemed to have issued or sold) any
shares of Common Stock without consideration or for a consideration per share
less than the Market Price determined as of the date of such issuance or sale,
then, effective immediately upon such issuance or sale, the Exercise Price shall
be reduced to an amount equal to the product obtained by multiplying (A) the
Exercise Price in effect immediately prior to such issuance or sale, by (B) a
fraction, the numerator of which shall be the sum of (x) the product obtained by
multiplying (1) the number of shares of Common Stock outstanding (on a
Fully-Diluted Basis) immediately prior to such issuance or sale by (2) the
Market Price as of the date of such issuance or sale, and (y) the consideration,
if any, received by the Corporation upon such issuance or sale, and the
denominator of which shall be the product obtained by multiplying (C) the number
of shares of Common Stock outstanding (on a Fully-Diluted Basis) immediately
after such issuance or sale, by (D) such Market Price. Upon each such adjustment
of the Exercise Price hereunder, the number of Warrant Shares which may be
obtained upon exercise of such Warrant shall be increased to the number of
shares determined by multiplying (A) the number of Warrant Shares which could be
obtained upon exercise of such Warrant immediately prior to such adjustment by
(B) a fraction, the numerator of which shall be the Exercise Price in effect
immediately prior to such adjustment and the denominator of which shall be the
Exercise Price in effect immediately after such adjustment.
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(b) For the purpose of determining the adjusted Exercise Price
under Section 4.4.1(a), the following shall be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Corporation in any manner
issues or grants any rights or options to subscribe for or to purchase (A)
Common Stock or (B) any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being
herein called "Convertible Securities"), and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon
conversion or exchange of such Convertible Securities is less than the
Market Price determined as of the date of issuance or grant of such
Options, then the total maximum number of shares of Common Stock issuable
upon the exercise of such Options (or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the
exercise of such Options) shall be deemed to be outstanding and to have
been issued and sold by the Corporation for such price per share. For
purposes of this paragraph, the price per share for which Common Stock is
issuable upon exercise of Options or upon conversion or exchange of
Convertible Securities issuable upon exercise of Options shall be
determined by dividing (A) the total amount, if any, received or
receivable by the Corporation as consideration for the issuing or granting
of such Options, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon the exercise of all such
Options, plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon issuance or sale of such Convertible
Securities and the conversion or exchange thereof, by (B) the total
maximum number of shares of Common Stock issuable upon exercise of such
Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options. No further
adjustment of the Exercise Price shall be made upon the actual issuance of
such Common Stock or of such Convertible Securities upon the Exercise of
such
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Options or upon the actual issuance of such Common Stock upon conversion
or exchange of such Convertible Securities.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Corporation in any
manner issues or sells any Convertible Securities having an exercise or
conversion or exchange price per share of Common Stock which is less than
the Market Price determined as of the date of such issuance or sale, then
the maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Corporation for such
lower price per share. For purposes of this paragraph, the price per share
for which Common Stock is issuable upon conversion or exchange of
Convertible Securities is determined by dividing (A) the total amount
received or receivable by the Corporation as consideration for the
issuance or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (B) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. No further adjustment of the
Exercise Price shall be made upon the actual issuance of such Common Stock
upon conversion or exchange of such Convertible Securities, and if any
such issuance or sale of such Convertible Securities is made upon exercise
of any Options for which adjustments of the Exercise Price had been or are
required to be made pursuant to other provisions of this Section 4.4.1(b),
no further adjustment of the Exercise Price shall be made by reason of
such issuance or sale.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If the purchase
price provided for in any Options, the additional consideration, if any,
payable upon the issuance, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock change at any time, then
the Exercise Price in effect at the time of such change shall be
readjusted to the Exercise Price which would have been in effect at such
time had such Options or Convertible Securities still outstanding provided
for such changed
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purchase price, additional consideration or changed conversion rate, as
the case may be, at the time initially granted, issued or sold and the
number of Warrant Shares shall be correspondingly readjusted.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. Upon the expiration of any Option or the termination of any
right to convert or exchange any Convertible Securities without the
exercise of such Option or right, the Exercise Price then in effect and
the number of Warrant Shares acquirable hereunder shall be adjusted to the
Exercise Price and the number of shares which would have been in effect at
the time of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such expiration
or termination, never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, then the consideration received therefor
shall be deemed to be the net amount received by the Corporation therefor.
If any Common Stock, Options or Convertible Securities are issued or sold
for consideration other than cash, then the amount of the consideration
other than cash received by the Corporation shall be the fair value of
such consideration determined by the Board of Directors of the
Corporation.
(vi) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or
for the account of the Corporation or any Subsidiary of the Corporation,
and the disposition of any shares so owned or held shall be considered an
issue or sale of Common Stock.
(vii) RECORD DATE. If the Corporation takes a record of the holders
of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed
to be the date of the issuance or sale of the shares
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of Common Stock deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be.
SECTION 4.4.2. SUBDIVISIONS OR COMBINATIONS OF COMMON STOCK. If, at
any time after the Closing Date, (a) the number of shares of Common Stock
outstanding is increased by a dividend or other distribution payable in shares
of Common Stock or by a subdivision or split-up of shares of Common Stock or (b)
the number of shares of Common Stock outstanding is decreased by a combination
or reverse stock split of shares of Common Stock, then, in each case, effective
as of the effective date of such event retroactive to the record date, if any,
of such event, (i) the Exercise Price shall be adjusted to a price determined by
multiplying (A) the Exercise Price in effect immediately prior to such event by
(B) a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such event and the denominator of which
shall be the number of shares of Common Stock outstanding after giving effect to
such event, and (ii) the number of Warrant Shares subject to purchase upon the
exercise of any Warrant shall be adjusted effective at such time, to a number
equal to the product of (A) the number of Warrant Shares subject to purchase
upon the exercise of such Warrant immediately prior to such event by (B) a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding after giving effect to such event and the denominator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
event.
SECTION 4.4.3. CAPITAL REORGANIZATION OR CAPITAL RECLASSIFICATIONS.
If, at any time after the Closing Date, there shall be any capital
reorganization or any reclassification of the capital stock of the Corporation
(other than a change in par value or from par value to no par value or from no
par value to par value or as a result of a stock dividend or subdivision,
split-up or combination of shares), then in each case the Corporation shall
cause effective provision to be made so that each Warrant shall, effective as of
the effective date of such event retroactive to the record date, if any, of such
event, be exercisable or exchangeable for the kind and number of shares of
stock, other securities, cash or other property to which a holder
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of the number of shares of Common Stock deliverable upon exercise or exchange of
such Warrant would have been entitled upon such reorganization or
reclassification and any such provision shall include adjustments in respect of
such stock, securities or other property that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Agreement with
respect to such Warrant.
SECTION 4.4.4. CONSOLIDATIONS AND MERGERS. If, at any time after the
Closing Date, the Corporation shall consolidate with, merge with or into, or
sell all or substantially all of its assets or property to, another corporation,
then the Corporation shall cause effective provision to be made so that each
Warrant shall, effective as of the effective date of such event retroactive to
the record date, if any, of such event, be exercisable or exchangeable for the
kind and number of shares of stock, other securities, cash or other property to
which a holder of the number of shares of Common Stock deliverable upon exercise
or exchange of such Warrant would have been entitled upon such event.
SECTION 4.4.5. NOTICE; CALCULATIONS; ETC. Whenever the Exercise Price
and the number of Warrant Shares shall be adjusted as provided in this Section
4.4, the Corporation shall provide to each Holder a statement, signed by an
Executive Officer, describing in detail the facts requiring such adjustment and
setting forth a calculation of the Exercise Price and the number of Warrant
Shares applicable to each Warrant after giving effect to such adjustment. All
calculations under this Section 4.4 shall be made to the nearest one hundredth
of a cent ($.0001) or to the nearest one-tenth of a share, as the case may be.
Adjustments pursuant to Sections 4.4.1, 4.4.2 and 4.4.3 shall apply to
successive events or transactions of the type covered thereby.
SECTION 4.4.6. CERTAIN ADJUSTMENTS. (a) Subject to the limitations
set forth in Section 7.4, the Corporation may make such reductions in the
Exercise Price or increase in the number of Warrant Shares to be received by any
Holder upon the exercise or exchange of a Warrant, in addition to those
adjustments required by this Section 4.4, as it in its sole discretion shall
determine to be advisable in order that any
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consolidation or subdivision of the Common Stock, or any issuance wholly for
cash of any shares of Common Stock, or any issuance wholly for cash of shares of
Common Stock or securities which by their terms are convertible into or
exchangeable for shares of Common Stock, or any stock dividend, or any issuance
of rights, options or warrants hereinafter made by the Corporation to the
holders of its Common Stock shall not be taxable to such holders.
(b) In the event that the Corporation in any manner issues or
grants Options or Convertible Securities, or any other transaction,
circumstances or events occur which give rise to anti-dilution adjustments under
Other Anti-Dilution Instruments, but not the Warrants, then the Corporation will
promptly make proportional, equitable and corresponding adjustments in the
number of shares of Common Stock issuable upon exercise of the Warrants to
protect the Holders against dilution as a result of such events.
SECTION 4.4.7. EXCLUDED TRANSACTIONS. Notwithstanding any other provision
of this Section 4.4, no adjustment shall be made pursuant to this Section 4.4 in
respect of the issuance of Excluded Securities.
SECTION 4.4.8. ADJUSTMENT RULES. (a) Any adjustments pursuant to this
Section 4.4 shall be made successively whenever an event referred to herein
shall occur, except that, notwithstanding any other provision of this Section
4.4, no adjustment shall be made to the number of shares of Common Stock or to
the Exercise Price if such adjustment represents less than 1% of the number of
shares previously required to be so delivered, but any lesser adjustment shall
be carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to 1% or more of the number of shares to be so delivered.
(b) Notwithstanding any other provision of this Agreement, the
actual amount payable by a Holder in connection with the exercise of a Warrant
hereunder shall not be less than the par value per share of the Common Stock,
unless and until the Exercise Price, as adjusted pursuant to this Section 4.4,
has been reduced to an amount less than 1% of the par value per share
-25-
of the Common Stock. Before taking any action which would cause an adjustment
pursuant to this Section 4.4 which would reduce the Exercise Price below 1% of
the par value per share, the Corporation shall be required to take any corporate
action which may be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable Warrant Shares at the Exercise Price
as so adjusted.
SECTION 4.5. REGULATED HOLDERS. If, in the written opinion of counsel
to any Regulated Holder (which may be internal counsel), the receipt by such
Regulated Holder of Warrant Shares (or any security included therein) upon any
exercise or exchange pursuant to this Article IV would cause such Regulated
Holder to violate any provision of Applicable Law with respect to its Ownership
of voting securities of the Corporation, then the Corporation will use its best
efforts (including without limitation using its best efforts to cause its
Organizational Documents to be amended) to create an Equivalent Nonvoting
Security with respect to Warrant Shares (or any such security included therein),
and such Regulated Holder shall be entitled to receive upon such exercise or
exchange, in lieu of such number (as it shall specify) of shares or other units
of Warrant Shares (or any such security included therein) otherwise receivable
by such Regulated Holder, the same number of shares or other units of such
Equivalent Nonvoting Security.
ARTICLE V
CERTAIN OTHER RIGHTS
SECTION 5.1. PAYMENTS IN RESPECT OF DIVIDENDS AND DISTRIBUTIONS. (a) If,
at any time prior to the earlier of (i) the Expiration Date and (ii) the
consummation of a Qualified Public Offering, the Corporation pays any dividend
or makes any distribution (whether in cash, property or securities of the
Corporation) on its capital stock which does not result in an adjustment under
Section 4.4, then the Corporation shall simultaneously pay to the Holder of each
Warrant, the dividend or distribution which would have been paid to such Holder
on the Warrant Shares receivable upon the exercise in full of such Warrant had
such Warrant been fully exercised immediately prior
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to the record date for such dividend or distribution or, if no record is taken,
the date as of which the record holders of Common Stock entitled to such
dividend or distribution are to be determined.
(b) If, in the written opinion of counsel to any Regulated
Holder (which counsel may be internal counsel), the distribution to such
Regulated Holder of any security of the Corporation pursuant to paragraph (a) of
this Section 5.1 would cause such Regulated Holder to violate any provision of
Applicable Law with respect to its Ownership of voting securities of the
Corporation, then the Corporation will use its best efforts (including, without
limitation, using its best efforts to cause its Organizational Documents to be
amended) to create an Equivalent Nonvoting Security with respect to the security
to be distributed and such Regulated Holder shall be entitled to receive, in
lieu of such number (as it shall specify) of shares or other units of the
security to be distributed pursuant to paragraph (a) of this Section 5.1.
otherwise receivable by such Regulated Holder, the same number of shares or
other units of such Equivalent Nonvoting Security.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.1. REPRESENTATIONS AND WARRANTIES OF ING. ING represents
that it is acquiring the Warrant to be issued to it on the Closing Date for its
own account, for investment purposes only and not with a view to any
distribution or public offering in violation of the Securities Act.
SECTION 6.2. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. The
Corporation hereby represents and warrants to ING as follows:
(a) ORGANIZATION. The Corporation is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, has all requisite power and
authority and has all material governmental licenses, approvals, consents
and
-27-
authorizations necessary to own its property and assets and to carry on
its business as currently conducted and is qualified to do business in
each jurisdiction in which the nature of the business conducted or the
property owned or leased by it requires such qualification except where
the failure to be so qualified or licensed would not have a material
adverse effect on the business, condition, operations or properties of the
Corporation.
(b) CORPORATE POWER AND AUTHORITY; NO REQUIRED CONSENTS OR
APPROVALS. (i) The Corporation has the power to execute, deliver and
perform its obligations under this Agreement, the Warrants and Amendment
No. 2 to the Registration Rights Agreement.
(ii) The execution, delivery and performance by the Corporation
of this Agreement, Amendment No. 2 to the Registration Rights Agreement,
the issuance of Warrants and the issuance of Warrant Shares upon exercise
of each Warrant, have been duly authorized by all required corporate and
stockholder action of the Corporation and will not (i) violate any
provision of Applicable Law, any Organizational Document, or any indenture
or other material agreement or instrument to which the Corporation is a
party or by which the Corporation or any of its properties are or may be
bound, (ii) conflict with, result in a breach of or constitute (alone or
with notice or lapse of time or both) a default under any such indenture
or other material agreement or instrument to which the Corporation is a
party, or by which the Corporation or any of its properties are or may be
bound, (iii) result in the creation or imposition of any Lien upon any
property of the Corporation or (iv) require registration or filing with,
or consent, approval or any other action by any Governmental Authority.
(c) ENFORCEABILITY. This Agreement, the Registration Rights
Agreement and the Stockholders Agreement have been duly executed and
delivered by the Corporation and each constitutes a legal, valid, binding
and enforceable obligation of the Corporation except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar event affecting the
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enforcement of creditors' rights generally and except as enforceability
may be subject to general principles of equity, whether such principles
are applied in a court of equity. When the Warrants and Warrant
Certificates have been issued as contemplated hereby, (i) each Warrant
will constitute the legal, valid, binding and enforceable obligation of
the Corporation and (ii) the Warrant Shares, when issued upon the exercise
or exchange of a Warrant in accordance with the terms hereof and of such
Warrant, will be duly authorized, validly issued, fully paid and
nonassessable shares of the Common Stock with no personal liability
attaching to the ownership thereof.
(d) CAPITALIZATION. (i) Attached hereto as Schedule I is a
correct and complete description of the authorized and outstanding capital
stock of the Corporation. All such outstanding shares are duly authorized,
validly issued, fully paid and nonassessable. The Warrant Shares represent
10.0% of the outstanding shares of Common Stock and 6.4% of the
outstanding shares of Common Stock on a fully-diluted basis (which
determination will (a) assume the exercise of all outstanding Options or
Convertible Securities, whether or not currently exercisable or
convertible, and irrespective of the exercise or conversion price and
other related terms, and (b) not be made in accordance with the "treasury
method").
(ii) Except as set forth on Schedule I hereto, except with
respect to the Warrants no Person holds any option, warrant, subscription
right, commitment or claim with respect to any capital stock of the
Corporation and no securities convertible into or exercisable or
exchangeable for any capital stock of the Corporation have been authorized
or issued.
(e) ORGANIZATIONAL DOCUMENTS. Attached hereto as Schedule II are
correct and complete copies of (i) the Corporation's Certificate of
Incorporation and By-laws, each as amended to date, which include the
terms of the Common Stock as in effect on the date hereof, (ii) all
outstanding warrants, options and other convertible securities that can be
converted into the Common Stock, and (iii) all
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outstanding registration rights that have been granted and in effect as of
the date hereof.
(f) CREDIT AGREEMENT. Each of the representations and warranties
of the Corporation set forth in or under the Credit Agreement is true and
correct in all material respects, and are hereby incorporated herein, with
the same effect as if stated in their entirety herein.
ARTICLE VII
COVENANTS OF THE CORPORATION
SECTION 7.1. NOTICES OF CERTAIN ACTIONS. (a) In the
event that the Corporation:
(i) shall authorize issuance to all holders of Common Stock of
rights or warrants to subscribe for or purchase capital stock of the
Corporation or of any other subscription rights or warrants; or
(ii) shall authorize a dividend or other distribution to all
holders of Common Stock of evidences of its indebtedness, cash or other
property or assets; or
(iii) proposes to become a party to any consolidation or merger
for which approval of any stockholders of the Corporation will be
required, or to a conveyance or transfer of the properties and assets of
the Corporation substantially as an entirety, or of any capital
reorganization or reclassification or change of the Common Stock (other
than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination);
or
(iv) commences a voluntary or involuntary dissolution,
liquidation or winding up;
(v) commences a Qualified Public Offering;
(vi) defaults under this Agreement; or
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(vii) proposes to take any other action which would require an
adjustment pursuant to Section 4.4;
then the Corporation shall provide a written notice to each Holder stating (i)
the date as of which the holders of record of Common Stock to be entitled to
receive any such rights, warrants or distribution are to be determined, (ii) the
material terms of any such consolidation or merger and the expected effective
date thereof, or (iii) the material terms of any such conveyance, transfer,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of record of Common Stock will be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, conveyance, transfer, dissolution,
liquidation or winding up. Such notice shall be given not later than twenty (20)
Business Days prior to the effective date (or the applicable record date, if
earlier) of such event. The failure to give the notice required by this Section
7.1 or any defect therein shall not affect the legality or validity of any
distribution, right, warrant, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or the vote upon any action.
SECTION 7.2. FINANCIAL STATEMENTS AND REPORTS. The Corporation shall
furnish to each Holder:
(a) as soon as available but in any event within ninety (90)
days after the end of each Fiscal Year (commencing with the Fiscal Year ending
December 31, 1994), consolidated balance sheets, income statements and cash flow
statements of the Corporation and its Subsidiaries, showing its financial
condition as of the close of such Fiscal Year and the results of its operations
during such year, all the foregoing financial statements to be audited by
independent accountants of nationally recognized standing and prepared in
accordance with GAAP;
(b) as soon as available but in any event within thirty (30)
days after the end of each fiscal quarter, the unaudited consolidated balance
sheets, income statements and cash flow statements, showing the financial
condition and results of operations of the Corporation, as at the end of each
such fiscal
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quarter and for the then elapsed portion of the Fiscal Year, in each case
prepared in accordance with GAAP;
(c) as soon as practicable and in any event not less than 15
days after the end of each fiscal year of the Corporation, an annual operating
budget for the Corporation for the succeeding fiscal year, containing budget of
profit and loss and cash flow (the "Budget"). Promptly upon preparation thereof,
the Corporation will furnish to the Holder any revisions of such previously
furnished Budgets;
(d) promptly upon their becoming available, copies of any
statements, reports and other communications, if any, which the Corporation
shall have provided to its stockholders or filed with the Commission or any
national securities exchange; and
(e) as soon as practicable and in any event not less than 15
days after the end of (i) each fiscal year of the Corporation and (ii) the
second fiscal quarter of each fiscal year of the Corporation, a completed
certificate substantially in the form of EXHIBIT D hereto, certifying as to the
percentage of Common Stock (on a Fully Diluted Basis) of the Corporation which
the Warrant Shares of the Holder represent.
SECTION 7.3. INFORMATION RIGHTS. Each Holder shall have all of the
rights of a holder of Common Stock under Applicable Law, whether or not such
holder has exercised or exchanged any Warrants, to receive lists of stockholders
or other information respecting the Corporation, to inspect the books and
records of the Corporation and to visit the properties of the Corporation.
SECTION 7.4. REGULATED HOLDERS. (a) Notwithstanding any other
provision of this Agreement or the Stockholders Agreement to the contrary,
except as provided in this Section 7.4, without the prior written consent of any
Regulated Holder, the Corporation shall not redeem, purchase or otherwise
acquire, directly or indirectly, convert, take any action (including any
amendment to an Organizational Document) with respect to the voting rights of,
or undertake any other action or transaction (including without limitation any
merger,
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consolidation or recapitalization) affecting, any shares of its capital stock or
other voting securities if the result of the foregoing would be to cause the
Ownership of the capital stock of any Person by such Regulated Holder, or the
Ownership of voting securities of any Person (or any class thereof) by such
Regulated Holder, to exceed the quantity of such capital stock or voting
securities (or any class thereof) that such Regulated Holder is permitted under
Applicable Law to Own. Any action or transaction referred to in the preceding
sentence shall be referred to herein as a "Section 7.4 Transaction". The
Corporation shall be permitted to undertake any Section 7.4 Transaction which
would otherwise result in the Ownership by any Regulated Holder of voting
securities (or any class thereof) in excess of the quantity permitted by
Applicable Law if, in a manner reasonably satisfactory to such Regulated Holder,
the Corporation shall provide or cause to be provided for such Regulated Holder
(i) to receive in connection with any such action or transaction a number of
shares or other units of Equivalent Nonvoting Securities equal to such excess in
lieu of the same number of shares or other units of the voting securities it
would otherwise have received or (ii) if it would not otherwise have received
voting securities in connection with such action or transaction, to exchange a
number of shares or other units of voting securities then held by such Regulated
Holder equal to such excess for the same number of shares or other units of
Equivalent Nonvoting Securities. If the Corporation proposes to undertake any
action or transaction which could constitute a Section 7.4 Transaction, it shall
provide the Holders at least 15 days prior written notice thereof. If, in the
written opinion of counsel to any Regulated Holder (which may be internal
counsel) delivered within 10 days following receipt of such notice, such action
or transaction constitutes a Section 7.4 Transaction with respect to such
Regulated Holder, then the Corporation shall delay undertaking such Section 7.4
Transaction for the purpose of using its best efforts to agree on a manner in
which to restructure such action or transaction in a manner reasonably
satisfactory to the Corporation and such Regulated Holder so that it no longer
would constitute a Section 7.4 Transaction. If the Corporation and such
Regulated Holder are unable to agree, within 20 days of the delivery of such
written opinion, upon a manner in which to so restructure such Section 7.4
Transaction, and such Section 7.4 Transaction is a bona fide action or
transaction proposed by the
-33-
Corporation in good faith, then the Corporation shall be permitted to undertake
such Section 7.4 Transaction if prior to or concurrently with doing so it
purchases from such Regulated Holder, at a purchase price equal to the Market
Value Per Share, a number (specified by such Regulated Holder) of Warrants
(based on the number of Warrant Shares represented thereby) or Warrant Shares
sufficient, in the written opinion of counsel to such Regulated Holder (which
may be internal counsel), to prevent such Section 7.4 Transaction from causing
the Ownership of the capital stock of any Person by such Regulated Holder to
exceed the quantity of such capital stock that such Regulated Holder is
permitted under Applicable Law to Own.
(b) If it becomes unlawful for any Regulated Holder to continue to hold
some or all of the Warrants or Warrant Shares held by it, or restrictions are
imposed on any Regulated Holder by Applicable Law which, in the reasonable
judgment of such Regulated Holder, make it unduly burdensome to continue to hold
such Warrants or Warrant Shares, the Corporation shall (i) cooperate with such
Regulated Holder in any efforts by such Regulated Holder to dispose of some or
all of such Warrants or Warrant Shares in a prompt and orderly manner, including
without limitation providing (and authorizing such Regulated Holder to provide)
financial and other information concerning the Corporation to any prospective
purchaser of such Warrants or Warrant Shares and (ii) at the request of such
Regulated Holder, take all steps (including without limitation using its best
efforts to cause its Organizational Documents to be amended) necessary to create
an Equivalent Nonvoting Security with respect to the Warrant Shares then held by
such Regulated Holder and permit such Regulated Holder to exchange Warrant
Shares for the same number of shares or other units of such Equivalent Nonvoting
Security; PROVIDED, HOWEVER, that nothing in this Section 7.4(b) shall require
the Corporation to register or qualify such Warrants or Warrant Shares under any
federal or state securities laws.
(c) If, in the written opinion of counsel to any Regulated Holder (which
may be internal counsel), the full exercise by such Regulated Holder of its
preemptive rights under Section 6 of the Stockholders Agreement would cause such
Regulated Holder to violate any provision of Applicable Law with respect to its
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Ownership of voting securities of the Corporation, then the Corporation will
take all steps (including without limitation using its best efforts to cause its
Organizational Documents to be amended) necessary to create an Equivalent
Nonvoting Security with respect to the securities offered under Section 6 of the
Stockholders Agreement and such Regulated Holder shall be entitled to receive,
in lieu of such number (as it shall specify) of shares or other units of
securities it would otherwise be entitled to acquire pursuant to Section 6 of
the Stockholder Agreement, the same number of shares or other units of such
Equivalent Nonvoting Security.
SECTION 7.5. MERGER OR CONSOLIDATION OF THE CORPORATION. The
Corporation will not merge or consolidate with or into, or sell, transfer or
lease all or substantially all of its property to, any other corporation or
partnership unless the successor or purchasing entity, as the case may be (if
not the Corporation), is organized under the laws of the United States of
America or any state or political subdivision thereof if such successor or
purchasing entity will issue securities or other consideration directly to all
the stockholders of the Corporation and shall expressly agree to provide to each
Holder the securities, cash or property required by Section 4.4.4 hereof upon
the exercise or exchange of Warrants and expressly assumes, by supplemental
agreement reasonably satisfactory in form and substance to each Holder, the due
and punctual performance and observance of each and every covenant and condition
of this Agreement to be performed and observed by the Corporation; PROVIDED,
HOWEVER, that the initial obligation of such successor with respect to the
exercise or exchange of Warrants shall be only as set forth in Section 4.4.4.
SECTION 7.6. RESERVATION OF SHARES. The Corporation will at all times
have authorized, and reserve and keep available, free from preemptive rights,
for the purpose of enabling it to satisfy any obligation to issue Warrant Shares
upon the exercise or exchange of each Warrant, the number of shares of Common
Stock deliverable upon exercise or exchange of all outstanding Warrants.
SECTION 7.7. CURRENT PUBLIC INFORMATION. At all times
after the Corporation has filed a registration statement with the
-35-
Securities and Exchange Commission pursuant to the requirements of either the
Securities Act or the Securities Exchange Act, the Corporation will file all
reports required to be filed by it under the Securities Act and the Securities
Exchange Act and the rules and regulations adopted by the Securities and
Exchange Commission thereunder, and will take such further action as any holder
or holders of restricted securities may reasonably request, all to the extent
required to enable such holders to sell restricted securities pursuant to (i)
Rule 144 or Rule 144A adopted by the Securities and Exchange Commission under
the Securities Act (as such rule may be amended from time to time) or any
similar rule or regulation hereafter adopted by the Securities and Exchange
Commission. Upon request, the Corporation will deliver to such holders a written
statement as to whether it has complied with such requirements.
SECTION 7.8. PUBLIC DISCLOSURES. The Corporation will not disclose
any Holder's name or identity as an investor in the Corporation in any press
release or other public announcement or in any written consent of such Holder,
unless such disclosure is required by applicable law or governmental regulations
or by order of a court of competent jurisdictions in which case prior to making
such disclosure the Corporation will given written notice to such Holder
describing in reasonable detail the proposed content of such disclosure and will
permit the Holder to review and comment upon the form and substance of such
disclosure.
SECTION 7.9. FIDUCIARY DUTIES OF THE CORPORATION. The Corporation and
its directors shall owe the holders of the Warrants the same fiduciary duties
that the Corporation and its directors would owe to the holders of the Warrant
Shares underlying the Warrants.
SECTION 7.10. TRANSACTIONS WITH AFFILIATES. The Corporation shall
not, and shall not permit any of its Subsidiaries to, enter into any transaction
with any Major Stockholder or any Affiliate of any Major Stockholder, except on
terms no less favorable to the Corporation or such Subsidiary than would be
obtained in a comparable arm's length transaction with a third party, provided,
however, that the restrictions in
-36-
this Section 7.10 will not be applicable to any financing should the Holder have
the right to participate in such financing.
SECTION 7.11. OPINION OF COUNSEL. At the Closing, the Corporation
will deliver to the Holder an opinion, dated as of the Closing Date,
substantially in the form of Exhibit C.
SECTION 7.12. CORPORATE ASSURANCES. The Corporation will not, by
amendment of its charter or through any consolidation, merger, reorganization,
transfer of assets, dissolution, issue or sale of securities, or any other
voluntary action, seek to avoid the observance or performance of any of the
terms of this Agreement, but will at all times in good faith seek to carry out
all such terms and take all such action as may be necessary or appropriate in
order to protect the rights of the holders of the Warrants and the Warrant
Shares against impairment. Without limiting the generality of the foregoing, the
Corporation (a) will not permit the par value of the Warrant Shares to exceed
the Exercise Price and (b) will take all such action and execute all such
further instruments and documents as may be necessary or appropriate (i) in
order that the Corporation may validly and legally issue, free from preemptive
rights, fully paid and non-assessable Warrant Shares upon the exercise of all
Warrants from time to time outstanding and (ii) to effectuate the terms and
purposes of this Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. NOTICES. All notices, demands and requests of any kind
to be delivered to any party hereto in connection with this Agreement shall be
in writing (i) delivered personally, (ii) sent by nationally-recognized
overnight courier, (iii) sent by first class, registered or certified mail,
return receipt requested or (iv) sent by facsimile, in each case to such party
at its address as follows:
(a) if to the Corporation, to:
Cornell Corrections, Inc.
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4801 Woodway
Suite 400 West
Houston, Texas 77056
Attention: Mr. Steven Logan
Telecopier: 713/623-2853
(b) if to ING, to:
Internationale Nederlanden (U.S.)
Capital Corporation
135 East 57th Street
New York, New York 10022-2101
Attention: Merchant Banking Group New York
Mr. David Scopelliti
Mr. David Balestrery
Telecopier: 212/593-3362
Any notice, demand or request so delivered shall constitute valid notice under
this Agreement and shall be deemed to have been received (i) on the day of
actual delivery in the case of personal delivery, (ii) on the next Business Day
after the date when sent in the case of delivery by nationally-recognized
overnight courier, (iii) on the fifth Business Day after the date of deposit in
the U.S. mail in the case of mailing or (iv) upon receipt in the case of a
facsimile transmission. Any party hereto may from time to time by notice in
writing served upon the other as aforesaid designate a different mailing address
or a different Person to which all such notices, demands or requests thereafter
are to be addressed.
SECTION 8.2. NO VOTING RIGHTS; LIMITATIONS OF LIABILITY. No Warrant
shall entitle the holder thereof to any voting rights or, except as otherwise
provided herein, other rights of a stockholder of the Corporation, as such. No
provision hereof, in the absence of affirmative action by the Holder to purchase
Warrant Shares, and no enumeration herein of the rights or privileges of the
Holder shall give rise to any liability of such Holder for the Exercise Price of
Warrant Shares
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acquirable by exercise hereof or as a stockholder of the Corporation.
SECTION 8.3. AMENDMENTS AND WAIVERS. Any provision of this Agreement
may be amended or waived, but only pursuant to a written agreement signed by the
Corporation and the Requisite Holders.
SECTION 8.4. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such provision and
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 8.5. SPECIFIC PERFORMANCE. Each Holder shall have the right
to specific performance by the Corporation of the provisions of this Agreement,
in addition to any other remedies it may have at law or in equity. The
Corporation hereby irrevocably waives, to the extent that it may do so under
applicable law, any defense based on the adequacy of a remedy at law which may
be asserted as a bar to the remedy of specific performance in any action brought
against the Corporation for specific performance of this Agreement by the
Holders of the Warrants or Warrant Shares.
SECTION 8.6. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Corporation, each Holder and their respective
successors and assigns.
SECTION 8.7. COUNTERPARTS. This Agreement may be executed (manually
or by facsimile) by the parties hereto in several counterparts, each of which
shall be deemed to be an original and all of which shall constitute together but
one and the same agreement. This Agreement shall become effective when
counterparts hereof executed on behalf of the Corporation and each Holder shall
have been received.
SECTION 8.8. GOVERNING LAW; ENTIRE AGREEMENT. THIS AGREEMENT AND THE
WARRANTS, SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW
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YORK. This Agreement and the Warrants, constitute the entire understanding among
the parties hereto with respect to the subject matter hereof and supersede any
prior agreements, written or oral, with respect thereto.
SECTION 8.9. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any Person other than the Corporation and each
Holder of a Warrant or a Warrant Share any legal or equitable right, remedy or
claim hereunder.
SECTION 8.10. HEADINGS. The various headings of this Agreement are
inserted for convenience only and shall not affect the meaning or interpretation
of this Agreement or any provisions hereof or thereof.
SECTION 8.11. EXPENSES. The Corporation will promptly (and in any
event within thirty (30) days of receiving any statement or invoice therefor)
pay all reasonable fees, expenses and costs relating hereto, including, but not
limited to, (i) the fees and disbursements of counsel to the Holder in preparing
this Agreement, (ii) all transfer, stamp, documentary or other similar taxes,
assessments or charges levied by any governmental or revenue authority in
respect hereof or any other document referred to herein, (iii) fees and expenses
(including, without limitation, reasonable attorneys' fees) incurred in respect
of the enforcement by Holders, if successful, of the rights granted to Holders
under this Agreement, and (iv) the expenses relating to the consideration,
negotiation, preparation or execution of any amendments, waivers or consents
requested by the Corporation pursuant to the provisions hereof, whether or not
any such amendments, waivers or consents are executed.
SECTION 8.12. ATTORNEYS' FEES. In any action or proceeding brought by
a party to enforce any provision of this Agreement, the prevailing party shall
be entitled to recover the reasonable costs and expenses incurred by it in
connection with that action or proceeding (including, but not limited to,
attorneys' fees).
SECTION 8.13. OTHER TRANSACTIONS. Nothing contained herein shall
preclude the Holder from engaging in any transaction, in addition to those
contemplated by this Agreement
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with the Corporation or any of its Affiliates in which the
Corporation or such Affiliate is not restricted hereby from engaging with any
other Person.
SECTION 8.14. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF THE HOLDERS OR THE CORPORATION SHALL BE BROUGHT
AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; THE
CORPORATION HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET
FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY
IN CONNECTION WITH SUCH LITIGATION. THE CORPORATION FURTHER IRREVOCABLY CONSENTS
TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL
SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE CORPORATION HEREBY
EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY
SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT
ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT
THAT THE CORPORATION HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION
OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE,
ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH
RESPECT TO ITSELF OR ITS PROPERTY, THE CORPORATION HEREBY IRREVOCABLY WAIVES
SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT.
SECTION 8.15. REGISTRATION RIGHTS. The Holder shall be entitled to
the same registration rights as set forth in the Registration Rights Agreement
with respect to the Warrant Shares.
SECTION 8.16. WAIVER OF JURY TRIAL. THE HOLDER AND THE CORPORATION
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE
-41-
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE HOLDER OR
THE CORPORATION. THE CORPORATION ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED
FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS
A MATERIAL INDUCEMENT FOR THE HOLDERS ENTERING INTO THIS AGREEMENT AND THE
CREDIT AGREEMENT.
SECTION 8.17. INDEMNIFICATION. The Corporation shall indemnify,
defend and hold the Holder harmless against all liability, loss or damage,
together with all reasonable costs and expenses related thereto (including legal
and accounting fees and expenses), arising from, relating to, or connected with
the untruth, inaccuracy or breach of any of the representations, warranties or
covenants contained herein.
SECTION 8.18. FILINGS. The Corporation shall, at its own expense,
promptly execute and deliver, or cause to be executed and delivered, to the
Holder all applications, certificates, instruments and all other documents and
papers that the Holder may reasonably request in connection with the obtaining
of any consent, approval, qualification, or authorization of any Federal,
provincial, state or local government (or any agency or commission thereof)
necessary or appropriate in connection with, or for the effective exercise of,
any Warrants then held by the Holder.
-42-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their authorized officers, all as of the date
and year first above written.
CORNELL CORRECTIONS, INC.
By: /S/ STEVEN W. LOGAN
Name: Steven W. Logan
Title: Chief Financial Officer
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION
By: /S/ DAVID BALESTRERY
Name: David Balestrery
Title: Senior Associate
-43-
EXHIBITS
Exhibit A: Terms of Class A Common Stock and Class B Common Stock
Exhibit B: Form of Warrant Certificate
Exhibit C: Opinion(s) of Counsel
SCHEDULES
Schedule I: Existing Capitalization/ Existing Convertible Equity Rights/
Outstanding Securities and Existing Registration Rights
Schedule II: Articles of Incorporation and Bylaws
-44-
EXHIBIT A
COMMON STOCK TERMS IN CHARTER DOCUMENTS
Except as herein otherwise expressly provided, all Class A Common Stock
and Class B Common Stock (collectively referred to herein as "COMMON STOCK")
shall be identical and shall entitle the holders thereof to the same rights and
privileges.
1. DIVIDENDS. Except as otherwise provided by the Certificate of
Incorporation or by applicable law, only the holders of Class A Common Stock
shall be entitled to the payment of dividends. Subject to the Stockholders
Agreement, the Board of Directors of the Corporation may cause dividends to be
paid to the holders of Class A Common Stock out of funds legally available for
the payment of dividends by declaring an amount per share as a dividend. When
and as dividends are declared, whether payable in cash, in property or in shares
of stock of the Corporation, the holders of Class A Common Stock shall be
entitled to share equally, share for share, in such dividends. Neither the Class
A Common Stock nor the Class B Common Stock may be subdivided, split,
consolidated or reclassified unless the other is ratably subdivided, split,
consolidated or reclassified.
2. LIQUIDATION RIGHTS. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of Common Stock shall be entitled to share, ratably according to the
number of Common Stock held by them, in all remaining assets of the Corporation
available for distribution to its stockholders.
3. VOTING RIGHTS. Except as otherwise provided in this Certificate of
Incorporation or by applicable law, only the holders of Class A Common Stock
shall be entitled to vote on each matter on which the stockholders of the
Corporation shall be entitled to vote, and each holder of Class A Common Stock
shall be entitled to one vote for each share of Class A Common Stock held by
him; PROVIDED, HOWEVER, (i) the holders of Class B Common Stock shall have no
right to vote on any matters to be voted on by the stockholders of the
Corporation and (ii) the Class B Common Stock shall not be included in
determining the number of shares voting or entitled to vote on such matters.
-1-
4. CONVERSION OF CLASS B COMMON STOCK; RESERVATION OF STOCK.
a. Upon the earlier of (i) the consummation of an initial public
offering of securities of the Corporation and (ii) the tenth anniversary of the
Closing Date (the "Triggering Event"), subject to the provisions of this
PARAGRAPH 4, the Class B Common Stock of each record holder shall be
automatically converted into the same number of Class A Common Stock.
b. Each conversion of Class B Common Stock into Class A Common Stock
shall be effected by the surrender of the certificate or certificates
representing Class B Common Stock to be converted at the principal office of the
Corporation (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holder or holders of Class
B Common Stock) at any time during its usual business hours. Promptly after such
surrender and the receipt of such written notice, the Corporation shall issue
and deliver in accordance with any instructions the certificate or certificates
for the Class A Common Stock issuable upon such conversion. To the extent
permitted by law, such conversion shall be deemed to have been effected as of
the close of business on the date of the Triggering Event.
c. The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares or in treasury a sufficient number of
Class A Common Stock as may be required, solely for the purpose of issue upon
the conversion of outstanding Class B Common Stock as provided in this PARAGRAPH
4. All Class A Common Stock which shall be so issuable shall, when issued, be
duly and validly issued, fully paid and non-assessable, free of any preemptive
rights. The Corporation will use reasonable efforts to take all such action as
may be necessary to assure that all such Class A Common Stock may be so issued
without violation by the Corporation of any applicable law or regulation or any
requirements of any domestic stock exchange upon which Common Stock may be
listed.
d. The issuance of certificates for Class A Common Stock upon
conversion of Class B Common Stock shall be made without charge to the holders
of such Class B Common Stock for
-2-
any issuance tax in respect thereof, or other cost incurred by the Corporation
in connection with such conversion and the related issuance of Common Stock,
provided that the Corporation shall not be required to pay any such tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any certificate in a name other than that of the holder of the Class B Common
Stock converted. The Corporation will not take any action which would cause the
total number of Class A Common Stock issuable upon conversion of the Class B
Common Stock then outstanding, together with the total number of Class A Common
Stock then outstanding and the total number of Class A Common Stock reserved for
issuance upon conversion of any Equity Rights or for any other purpose, to
exceed the total number of shares of Class A Common Stock then authorized by the
Corporation's Certificate of Incorporation.
-3-
EXHIBIT B
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO
AN EXEMPTION FROM, OR OTHERWISE IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF SUCH ACT. IN ADDITION, THE SECURITIES REPRESENTED
HEREBY ARE SUBJECT TO THE LIMITATIONS ON TRANSFER SET FORTH IN THE WARRANT
ISSUANCE AGREEMENT DATED AS OF JULY 3, 1996, BETWEEN THE CORPORATION AND
INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION. A COPY OF THE WARRANT
ISSUANCE AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE
CORPORATION AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER HEREOF UPON
WRITTEN REQUEST TO THE CORPORATION.
CORNELL CORRECTIONS, INC.
No. __ Warrant to Purchase
264,000 Shares
of Common Stock
July __, 1996
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES that, for value received, INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION, a Delaware corporation ("ING"), is entitled to
purchase from CORNELL CORRECTIONS, INC., a Delaware corporation (the
"Corporation"), 265,000 shares of the Class B Common Stock, $.01 par value (the
"Class B Common Stock"), of the Corporation at the price (the "Exercise Price")
of $2.82 per share, at any time or from time to time during the
-1-
period commencing on the date hereof and ending at 5:00 P.M. on the seventh
anniversary of the date hereof (the "Expiration Date"); PROVIDED, HOWEVER, that
this Warrant may not be exercised for Common Stock by any Regulated Holder to
the extent that such exercise will result in a violation of any Applicable Law.
This Warrant has been issued pursuant to the Warrant Issuance
Agreement (the "Warrant Issuance Agreement") dated the date hereof, between the
Corporation and the Holder, and is subject to the terms and conditions, and
entitled to the benefits, thereof, including provisions (i) for adjusting the
number of Warrant Shares issuable upon the exercise hereof and the Exercise
Price to be paid upon such exercise, (ii) providing for certain "call" rights
and (iii) providing certain information and other rights. In addition, this
Warrant is subject to certain terms and conditions, and is entitled to certain
benefits, as set forth in each of the Registration Rights Agreement, as amended
by Amendment No. 1, dated as of March 14, 1995, and as amended by Amendment No.
2, dated as of the date hereof (the "Registration Rights Agreement"), and the
Amended and Restated Stockholders Agreement, dated as of March 14, 1995 (the
"Stockholders Agreement"), each among the Corporation, the Investors defined
therein, David Cornell and ING, including provisions (i) providing preemptive
rights upon the sale by the Corporation of equity securities, (ii) providing for
certain "tag-along" rights and (iii) providing certain information and other
rights. A copy of each of the Warrant Issuance Agreement, the Registration
Rights Agreement and the Stockholders Agreement is available for inspection at
the principal office of the Corporation and will be furnished without charge to
the Holder upon written request to the Corporation. Capitalized terms used but
not defined herein shall have the meaning given to them in the Warrant Issuance
Agreement.
SECTION 1. EXERCISE OF WARRANT. On any Business Day, prior to the
Expiration Date, the Holder may exercise this Warrant, in whole or in part, by
delivering to the Corporation this Warrant accompanied by a properly completed
Exercise Form in the form of Annex A and a check in an aggregate amount equal to
the product obtained by multiplying (a) the Exercise Price by (b) the number of
Warrant Shares being purchased; PROVIDED, HOWEVER, in the event the Holder
exercises this Warrant in connection with or
-2-
immediately prior to a sale by the Holder of Warrant Shares, in lieu of paying
the applicable Exercise Price therefor, the Holder may elect to receive that
number of Warrant Shares which is equal to the number of shares for which this
Warrant is being exercised less the number of shares having a Market Value equal
to such applicable Exercise Price, where such Market Value per Share shall be
equal to the price per share at which the Holder is selling the Warrants. Any
partial exercise of a Warrant shall be for a whole number of Warrant Shares
only.
SECTION 2. EXERCISE PRICE. The Exercise Price is subject to adjustment
from time to time as provided in the Warrant Issuance Agreement.
SECTION 3. EXCHANGE OF WARRANT. On any Business Day prior to the
Expiration Date, the Holder may exchange this Warrant, in whole or in part, for
Warrant Shares by delivering to the Corporation this Warrant accompanied by a
properly completed Exchange Form in the form of Annex B. The number of shares of
Common Stock to be received by the Holder upon such exchange shall be determined
as provided in Section 4.2 of the Warrant Issuance Agreement.
SECTION 4. TRANSFER. Subject to the limitations set forth in the Warrant
Issuance Agreement, this Warrant may be transferred by the Holder by delivery to
the Corporation of this Warrant accompanied by a properly completed Assignment
Form in the form of Annex C.
SECTION 5. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant
is lost, stolen, mutilated or destroyed, the Corporation will issue a new
Warrant of like denomination and tenor upon compliance with the provisions set
forth in the Warrant Issuance Agreement.
SECTION 6. NO STOCKHOLDER RIGHTS. This Warrant shall not entitle the
holder hereof to any voting rights or, except as otherwise provided in the
Warrant Issuance Agreement, the Stockholders Agreement or the Registration
Rights Agreement, other rights of a stockholder of the Corporation, as such.
-3-
SECTION 7. SUCCESSORS. All of the provisions of this Warrant by or for the
benefit of the Corporation or the Holder shall bind and inure to the benefit of
their respective successors and assigns.
SECTION 8. HEADINGS. Section headings in this Warrant have been Inserted
for convenience of reference only and shall not affect the construction of, or
be taken into consideration in interpreting, this Warrant.
SECTION 9. GOVERNING LAW. This Warrant shall be construed in accordance
with and governed by the laws of the State of New York (without giving effect to
principles or conflicts or laws).
-4-
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed
by its duly authorized officers under its corporate seal, and this Warrant to be
dated as of the date first set forth above.
CORNELL CORRECTIONS, INC.
By:
Name:
Title:
[CORPORATE SEAL]
ATTEST:
By
Name :
Title:
-5-
ANNEX A
ELECTION TO EXERCISE FORM
(To Be Executed By The Holder of This Warrant
In Order to Exercise This Warrant)
The undersigned hereby irrevocably elects to exercise the right to
purchase ______________ shares of Class B Common Stock of Cornell Corrections,
Inc. covered by this Warrant according to the conditions hereof and herewith
makes payment of the Exercise Price of such shares in full.
-----------------------------
Signature
-----------------------------
-----------------------------
Address
Dated: _________________________
ANNEX B
EXCHANGE FORM
(To Be Executed By The Holder of This Warrant
In Order to Assign This Warrant Certificate)
The undersigned hereby irrevocably elects to exchange this Warrant to
purchase ___________ shares of Class B Common Stock of Cornell Corrections, Inc.
covered by this Warrant for ___________ Warrants to purchase the denominations
of shares of Common Stock set forth below to the persons named and hereby sells,
assigns and transfers unto such persons that portion of this Warrant represented
by such new Warrants and all rights evidenced thereby and does irrevocably
constitute and appoint ____________________, attorney, to exchange and transfer
this Warrant as aforesaid on the books of the Corporation.
NUMBER OF WARRANT SHARES ASSIGNEE
- ------------ -----------------------------
- ------------ -----------------------------
-----------------------------
Signature
-----------------------------
-----------------------------
Address
FOR USE BY THE CORPORATION ONLY:
This Warrant No. __ cancelled (or transferred or exchanged) this ________ day of
_____________, _____________ shares of Class __ Common Stock issued therefor in
the name of _________________, Warrant No. ___ for __________ shares of Class __
Common Stock in the name of ________________________.
Dated: ____________________________
ANNEX C
ASSIGNMENT FORM
(To Be Executed By The Holder of This Warrant
In Order to Assign This Warrant Certificate)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _____________________________ this Warrant and all rights evidenced thereby
and does irrevocably constitute and appoint __________________, attorney, to
transfer the said Warrant on the books of the Corporation.
-----------------------------
Signature
-----------------------------
-----------------------------
Address
Dated: _________________________
EXHIBIT C
OPINION(S) OF COUNSEL
The matters set forth below shall be addressed in the opinion(s) of the
Corporation's counsel delivered in connection with the execution and delivery of
the Warrant Issuance Agreement, dated July 3, 1996 between Cornell Corrections,
Inc., a Delaware corporation, and Internationale Nederlanden (U.S.) Capital
Corporation, a Delaware corporation (the "Agreement"). Capitalized terms used
but not defined herein shall have the meanings specified in the Agreement.
1. The Corporation (a) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, (b)
has all requisite corporate power and authority to own its property and assets
and to carry on its business as now conducted and as proposed to be conducted,
and (c) has the corporate power and authority to execute, deliver and perform
its obligations under each of the Agreement, the Warrant and Amendment No. 2 to
the Registration Rights Agreement, each dated the date hereof, and the
agreements contemplated thereby to which it is or will be a party (collectively,
the "Material Agreements").
2. The execution, delivery and performance by the Corporation, of each of
the Material Agreements to which it is a party, the issuance of the Warrants and
the other transactions contemplated by the Material Agreements, (a) have been
duly authorized by all requisite corporate and, if required, stockholder action,
and (b) do not (i) violate or conflict with (A) any provision of law, any
statute, rule or regulation, or of the Organizational Documents, (B) any order
of any court or governmental entity or (C) any provision of any indenture,
agreement or other instrument to the Corporation is a party or by which its
properties are bound, (ii) conflict with, result in a breach of or constitute
(alone or with notice or lapse of time or both) a default under any such
indenture, agreement or other instrument (iii) to the best of our knowledge,
result in the creation or imposition of any lien (other than any lien created
-1-
under or in connection with the Credit Agreement) upon or with respect to any
property or assets now owned or hereafter acquired by the Corporation.
3. The amendments to the Corporation's Organizational Documents and other
agreements and instruments contemplated by the Material Agreements have been
duly authorized, filed and obtained.
4. The Material Agreements to which the Corporation is a party have each
been duly authorized, executed and delivered by the Corporation. Each such
Material Agreement constitutes the legal, valid and binding obligation of the
Corporation, enforceable against the Corporation in accordance with its terms.
5. As of the Closing Date, the authorized capital stock of Corporation
consists of (i) __________ shares of class A common stock, $.01 par value (the
"Class A Common Stock") of which _________ shares are issued and outstanding,
and (ii) _________ shares of class B common stock, $.01 par value (the "Class B
Common Stock") of which __________ shares are issued and outstanding. All
outstanding shares of capital stock of the Corporation are fully paid and
nonassessable.
6. The Class B Common Stock when issued in accordance with the Warrant
Agreement will be duly and validly issued, fully paid and non-assessable Common
Stock of the Corporation.
-2-
EXHIBIT D
[FORM OF CERTIFICATE]
CERTIFICATE OF OFFICER
OF
CORNELL CORRECTIONS, INC.
Furnished pursuant to the Warrant Issuance Agreement, dated as of July 3, 1996
(the "WARRANT AGREEMENT"), between CORNELL CORRECTIONS, INC., a Delaware
corporation (the "CORPORATION") and INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL
CORPORATION, a Delaware corporation ("ING").
I, the undersigned, the Chief Financial Officer of the Corporation, do
hereby certify that as of July __, 1996 that the total number of warrants of the
Corporation (the "WARRANTS") held by ING is _________ and that such number of
Warrants represents ___% of the total outstanding Common Stock of the
Corporation as determined on a Fully Diluted Basis.
Terms for which meanings are provided in the Warrant Agreement are used
herein with such meanings.
IN WITNESS WHEREOF. the undersigned has hereunto set his
hand on behalf of the Corporation on _______________.
By ___________________________
Name:
Title:
-3-
Exhibit 10.29
STOCK OPTION AGREEMENT
AGREEMENT dated July 9, 1996 between CORNELL CORRECTIONS, INC., a
Delaware corporation (the "Company"), and CHARTERHOUSE EQUITY PARTNERS II, L.P.,
a Delaware limited partnership ("Holder").
WITNESSETH:
WHEREAS, the Holder has agreed to execute a Put Agreement (the "Put
Agreement"), dated of even date herewith, among itself, the Company and certain
other parties, pursuant to which the Holder has committed (the "Commitment"),
under certain circumstances, to purchase from Internationale Nederlanden (U.S.)
Capital Corporation certain shares of the Class A Common Stock of the Company.
NOW, THEREFORE, in consideration of the Holder executing the Put
Agreement and making the Commitment, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Company agrees
as follows:
1. Subject to the terms and conditions set forth below, the Company hereby
grants to Holder stock options (the "Options") to purchase 60,221 shares of
Class B Common Stock of the Company (the "Common Stock") at an exercise price of
$2.82 per share (the "Exercise Price") with such amount being subject to
adjustment as
1
provided in Section 6 below. The Options will be exercisable in whole or in part
at any time or from time to time on or before June 30, 2006 (the "Expiration
Date"). Any Options not exercised on or before the Expiration Date shall
terminate and be of no value.
2. Prior to the Expiration Date, Holder may exercise Options by
delivering to the Company, from time to time, a written notice specifying the
number of Options which Holder then desires to exercise together with cash or a
certified check to the order of the Company for an amount in United States
dollars equal to the Exercise Price multiplied by the number of shares being
purchased pursuant to the exercise of the Option. Upon receipt of such funds,
and in no event later than ten days after the effective date of such written
notice (as determined in accordance with Section 10 hereof), the Company will
issue and deliver to Holder a certificate representing those shares of Common
Stock issued upon exercise of the Options (the "Shares"). Such certificate shall
bear a legend substantially similar to the legend set forth in Section 9 hereof.
3. The Company covenants that (a) from the date hereof until the
Expiration Date, it will at all times have authorized, and keep reserved and
available, for the purpose of enabling it to satisfy its obligation to issue the
Shares upon exercise of the Options, the number of Shares deliverable upon
exercise of all of the Options and (b) the Shares will, upon
2
issuance in accordance with the terms of this Agreement, be duly authorized,
fully paid and non-assessable.
4. Holder, as holder of the Options, shall not be deemed to be a
stockholder of the Company and shall not have the rights of a stockholder of the
Company including, without limitation, the right to vote or to receive
dividends, until the Options are exercised.
5. The existence of the Options granted hereunder shall not affect in
any way the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company or any issue of bonds, debentures, preferred or
prior preference stocks ahead of or affecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
6. The Shares are shares of Common Stock of the Company as presently
constituted, but if, and whenever, prior to the issuance and delivery by the
Company of all of the Shares with respect to which Options are granted, the
Company shall effect a subdivision or consolidation of shares or other capital
adjustment, the payment of a stock dividend, or other issuance of shares of the
Common Stock, then the aggregate number of shares
3
which may be purchased pursuant to the Options and the Exercise Price shall be
proportionally adjusted. Notwithstanding the foregoing, no adjustment shall be
made upon the issuance of new shares of Common Stock for fair consideration.
7. In the event the Company shall at any time prior to the Expiration
Date merge with or into, consolidate with or sell or otherwise transfer all or
substantially all of its assets to another entity (a "Business Combination")
then the Options shall entitle Holder to receive upon exercise, in lieu of
shares of Common Stock, the consideration which a holder of the number of shares
of the Common Stock subject to the Options would have been entitled to receive
pursuant to the Business Combination.
8. Holder represents and warrants that it is acquiring the Options and
will acquire the Shares, for its own account, for investment with no present
intention of selling or otherwise distributing the same. Holder hereby
acknowledges its understanding that the Options and the Shares are not being
registered under the Securities Act of 1933, as amended ("Act"), on the ground
that the issuance and sale of the Options and the Shares to Holder are exempt
under Section 4(2) of the Act as not involving a public offering. Holder further
acknowledges its understanding that the Company's reliance on such exemption is,
in part, based upon the foregoing intention of Holder and that the statutory
basis for such exemption would not be present if, notwithstanding such
representation and warranty, Holder were
4
acquiring the Options and the Shares for resale on the occurrence or
nonoccurrence of some predetermined event. Holder hereby acknowledges that (i)
the Shares may be sold by Holder only (a) pursuant to an effective registration
statement under the Act filed by the Company with the Securities and Exchange
Commission (the "Commission") relating to such sale or (b) in a transaction
which is otherwise exempt from registration under the Act and (ii) the Company
will be under no obligation to file such registration statement with the
Commission.
9. All certificates representing Shares to be issued pursuant to the
terms of this Agreement shall bear a legend in substantially the following form:
"The shares represented by this Certificate have not been
registered under the Securities Act of 1933, as amended. The shares have
been acquired for investment and may not be offered for sale, sold, or
otherwise distributed within the meaning of said Act in the absence of
an effective registration statement for the shares under said Act or an
opinion of counsel to the Corporation that registration is not required
thereunder."
10. Any notice required hereunder shall be in writing and delivered by
hand or sent by registered or certified mail, addressed to the other party
hereto at its address set forth below:
If to the Company: Cornell Corrections, Inc.
4801 Woodway - Suite 400W
Houston, TX 77056; and
If to Holder: c/o Charterhouse Group
International, Inc.
535 Madison Avenue - 28th Floor
New York, NY 10022
Attn: Richard T. Henshaw, III
5
Any such notice shall become effective (a) when mailed, three days after having
been deposited in the mails, postage prepaid, and (b) in the case of delivery by
hand, upon delivery.
11. This Agreement supersedes any prior agreements or understandings,
oral or written, between the parties hereto and represents their entire
understanding and agreement with respect to the subject matter hereof and can be
amended, supplemented or changed, and any provision hereof can be waived, only
by written instrument making specific reference to this Agreement signed by the
party against whom enforcement of any such amendment, supplement, modification
or waiver is sought.
12. Any waiver or any breach of this Agreement shall not be construed to
be a continuing waiver or consent to any subsequent breach by any party hereto.
13. If any term or provision of this Agreement or the application
thereof to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Agreement, or the application of such term
or provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
14. This Agreement is not assignable without the consent of each party
hereto except that Holder may assign this
6
Agreement to an affiliate or to its successor by operation of law. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective heirs, successors, legal representatives and
permitted assigns.
15. The paragraph headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
16. This Agreement has been executed and delivered in, and shall be
construed and enforced in accordance with, the laws of the State of Delaware
applicable to contracts made and performed therein, without giving effect to the
choice of law principles thereof.
17. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
CORNELL CORRECTIONS, INC.
By: /s/ STEVEN W. LOGAN
Title: Chief Financial Officer
CHARTERHOUSE EQUITY PARTNERS II, L.P.
7
By: CHUSA Equity Investors II, L.P.,
general partner
By: Charterhouse Equity II, Inc.,
general partner
By: /s/ RICHARD T. HENSHAW
Title: Senior Vice President
8
EXHIBIT 10.30
EXECUTION COPY
WARRANT ISSUANCE AGREEMENT
Dated as of March 14, 1995
between
CORNELL COX, INC.
and
INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions .............................................. 1
SECTION 1.2. Interpretation ........................................... 11
ARTICLE II
ISSUANCE OF WARRANT; CLOSING
SECTION 2.1. Issuance of Warrant ...................................... 12
SECTION 2.2. Closing .................................................. 12
ARTICLE III
FORM; EXCHANGE FOR WARRANTS; TRANSFER; TAXES
SECTION 3.1. Form of Warrant .......................................... 12
SECTION 3.2. Exchange of Warrants for Warrants ........................ 13
SECTION 3.3. Transfer of Warrant ...................................... 14
ARTICLE IV
EXERCISE OF WARRANT; EXCHANGE FOR WARRANT SHARES
SECTION 4.1. Exercise of Warrants ..................................... 15
SECTION 4.2. Exchange for Warrant Shares .............................. 15
SECTION 4.3. Issuance of Common Stock ................................. 15
SECTION 4.4. Adjustment of Exercise Price and Number
of Warrant Shares ...................................... 17
SECTION 4.4.1. Adjustment upon Issuance of Common Stock ............... 17
SECTION 4.4.2. Subdivisions or Combinations of
Common Stock ......................................... 20
SECTION 4.4.3. Capital Reorganization or Capital Reclassifications .... 21
SECTION 4.4.4. Consolidations and Mergers ............................. 21
SECTION 4.4.5. Notice; Calculations; Etc .............................. 21
SECTION 4.4.6. Certain Adjustments .................................... 22
SECTION 4.4.7. Excluded Transactions .................................. 22
SECTION 4.4.8. Adjustment Rules ....................................... 22
SECTION 4.5. Regulated Holders ........................................ 23
ARTICLE V
CERTAIN OTHER RIGHTS
SECTION 5.1. Payments in Respect of Dividends and
Distributions .......................... 23
SECTION 5.2. Call Rights .............................................. 24
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.1. Representations and Warranties of ING .................... 25
SECTION 6.2. Representations and Warranties of the
Corporation ............................................ 26
(a) Organization ......................................... 26
(b) Corporate Power and Authority; No
Required Consents or Approvals ..................... 26
(c) Enforceability ....................................... 26
(d) Capitalization ....................................... 27
(e) Organizational Documents ............................. 27
ARTICLE VII
COVENANTS OF THE CORPORATION
SECTION 7.1. Notices of Certain Actions ............................... 28
SECTION 7.2. Financial Statements and Reports ......................... 29
SECTION 7.3. Information Rights ....................................... 29
SECTION 7.4. Regulated Holders ........................................ 29
SECTION 7.5. Merger or Consolidation of the
Corporation .............................................. 31
SECTION 7.6. Reservation of Shares .................................... 32
SECTION 7.7. Current Public Information ............................... 32
SECTION 7.8. Public Disclosures ....................................... 32
SECTION 7.9. Fiduciary Duties of the Corporation ...................... 33
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. Notices .................................................. 34
SECTION 8.2. No Voting Rights; Limitations of
Liability .............................................. 34
SECTION 8.3. Amendments and Waivers ................................... 35
SECTION 8.4. Severability ............................................. 35
SECTION 8.5. Specific Performance ..................................... 35
SECTION 8.6. Binding Effect ........................................... 35
SECTION 8.7. Counterparts ............................................. 35
SECTION 8.8. Governing Law; Entire Agreement .......................... 35
SECTION 8.9. Benefits of this Agreement ............................... 36
SECTION 8.10. Headings ................................................ 36
SECTION 8.11. Expenses ................................................ 36
SECTION 8.12. Attorneys' Fees ......................................... 36
SECTION 8.13. Other Transactions ...................................... 36
SECTION 8.14. Forum Selection and Consent to
Jurisdiction .......................................... 36
<PAGE>
WARRANT ISSUANCE AGREEMENT dated as of March, 14, 1995, between THE CORNELL COX,
INC., a Delaware corporation (the "Corporation" or the "Borrower"), and
INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, a Delaware corporation
("ING").
The parties to this Agreement hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. As used in this Agreement,
the following terms shall have the following meanings:
"AFFILIATE" shall mean, with respect to any Person, any Person that
directly or indirectly through one or more intermediaries Controls, is
Controlled by or is under common Control with such Person.
"ALLOCABLE NUMBER" shall have the meaning given to such term in
Section 4.2.
"APPLICABLE LAW" shall mean all provisions of laws, statutes,
ordinances, rules, regulations, permits, certificates or orders of any
Governmental Authority applicable to the Person yin question or any of its
assets or property, and all judgments, injunctions, orders and decrees of all
courts and arbitrators in proceedings or actions in which the Person in question
is a party or by which any of its assets or properties are bound.
"APPLICABLE REDUCTION" shall mean a reduction in the Warrant Shares
represented by the Warrants, PRO RATA among the Warrant Shares (issued or
represented by outstanding Warrants), such that the aggregate amount of such
Warrant Shares represents:
(a) from the Closing Date to (and including) the twelve-month
anniversary of the Closing Date, 3.99% of the outstanding shares of Common
Stock, as of the date hereof, on a fully-diluted basis (which determination will
(a) assume the existence of all outstanding Options or Convertible Securities,
whether or not currently exercisable or convertible, and
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irrespective of the exercise or conversion price and other related terms, and
(b) not be made in accordance with the "treasury method");
(b) from (but excluding) the twelve-month anniversary of the Closing
Date to (and including) the eighteen-month anniversary of the Closing Date,
4.24% of the outstanding shares of Common Stock, as of the date hereof, on a
fully-diluted basis (which determination will (a) assume the existence of all
outstanding Options or Convertible Securities, whether or not currently
exercisable or convertible, and irrespective of the exercise or conversion price
and other related terms, and (b) not be made in accordance with the "treasury
method"); and
(c) from (but excluding) the eighteen-month anniversary of the
Closing Date to (and including) the twenty-four month anniversary of the Closing
Date, 4.46% of the outstanding shares of Common Stock, as of the date hereof, on
a fully-diluted Basis (which determination will (a) assume the existence of all
outstanding Options or Convertible Securities, whether or not currently
exercisable or convertible, and irrespective of the exercise or conversion price
and other related terms, and (b) not be made in accordance with the "treasury
method");
in each case, as may be adjusted from time to time in the manner provided under
Section 4.4.
"ASSIGNMENT FORM" shall mean the assignment form attached as Annex C
to a Warrant.
"BORROWER" shall have the meaning given to such term in
the preamble.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or a
day on which banks are authorized or required to be closed in New York, New
York; PROVIDED, HOWEVER, that any determination of a Business Day relating to a
securities exchange shall mean a Business Day on which such exchange is open for
trading.
"CALL" shall have the meaning given to such term in Section 5.2
hereof.
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"CALL CLOSING" shall have the meaning given to such term in Section
5.2 hereof.
"CALL NOTICE" shall have the meaning given to such term in Section
5.2 hereof.
"CALL PRICE" shall mean Market Value Per Share. Notwithstanding the
foregoing, if at the time of determination of the Call Price, Warrant Shares
shall consist in any part of securities or property other than Common Stock, the
Call Price shall include a cash amount per Warrant Share equal to that portion
of the fair value (determined in accordance with the Valuation Procedure) of
such securities or property allocable to each Warrant Share.
"CHARTERHOUSE" shall mean Charterhouse Group International Inc. and
any entity controlled by Charterhouse Group International Inc. As used in this
definition, "CONTROLLED BY" shall mean the possession, directly or indirectly,
of power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise).
"CLASS A COMMON STOCK" shall mean the Class A Common Stock, $.01 par
value, of the Corporation having the terms, conditions, rights and limitations
described in EXHIBIT A hereto.
"CLASS B COMMON STOCK" shall mean the Class B Common Stock, $.01 par
value, of the Corporation having the terms, conditions, rights and limitations
described in EXHIBIT A hereto.
"CLOSING" shall have the meaning given to such term in
Section 2.2.
"CLOSING DATE" shall have the meaning given to such term in Section
2.2.
"COMMISSION" shall mean the Securities and Exchange Commission (or a
successor thereto).
"COMMON STOCK" shall mean the Class A Common Stock and the Class B
Common Stock.
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"CONTROL" shall mean, with respect to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"CORPORATION" shall have the meaning given to such term
in the Preamble.
"CONVERTIBLE SECURITIES" shall have the meaning given to such term
in Section 4.4.1(b).
"DELIVERY DATE" shall have the meaning given to such term in Section
4.3(a).
"DILLON READ" shall mean Dillon Read & Co., Inc. and
any entity for which Dillon Read & Co., Inc. serves as an
investment manager or for which it has investment discretion.
"EQUIVALENT NONVOTING SECURITY", with respect to any security (a
"first security") issued or to be issued by any Person, shall mean a security
(an "equivalent security") of such Person that is identical in rights and
benefits to such first security, except that (a) the equivalent security shall
not be entitled to vote on any matter on which holders of voting securities of
such Person are entitled to vote, other than as required by Applicable Law or
with respect to any amendment or repeal of any provision of the Organizational
Documents of such Person or any other agreement or instrument pursuant to which
the equivalent security was issued which provision specifically affects such
equivalent security, (b) subject to such reasonable restrictions as any affected
Regulated Holder may request (including, without limitation, any restriction
necessary to prevent the violation by such Regulated Holder of any provision of
Applicable Law with respect to its Ownership of voting securities), the
equivalent security shall be convertible in a one-to-one ratio into the first
security and (c) the terms of the equivalent security shall include such
provisions requested by any affected Regulated Holder as are reasonable and
equitable to ensure that (i) the equivalent security is treated comparably to
the first security with respect to dividends, distributions, stock splits,
reclassifications, capital reorganizations,
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mergers, consolidations and other similar events and transactions, (ii) the
conversion right provided in clause (b) above is equitably protected and (iii)
the acquisition of the equivalent security will not cause such Regulated Holder
to violate Applicable Law.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXCHANGE FORM" shall mean the exchange form attached as Annex B to
a Warrant.
"EXCLUDED SECURITIES" shall mean:
(i) shares of capital stock issued pursuant to a stock
dividend or a stock split or other subdivision of shares;
(ii) Common Stock issued upon (A) conversion or exercise of any of
the Corporation's convertible preferred stock outstanding at the Closing Date,
or (B) exercise of the Warrants;
(iii) securities issued by the Corporation in a
Qualified Public Offering;
(iv) securities issued pursuant to the direct or indirect BONA FIDE
acquisition by the Corporation of any Person, whether by merger, purchase of
stock, purchase of assets or otherwise;
(v) securities issued upon exercise of conversion or exchange
rights, options or subscription calls, warrants, commitments or claims, provided
that the foregoing are outstanding on the date hereof or are issued hereafter in
compliance with Section 6 of the Stockholders Agreement hereof; and
(vi) Common Stock or options to purchase Common Stock issued to
directors, officers, employees or consultants of the Corporation or the issuance
of Common Stock upon the exercise of any such options; PROVIDED, HOWEVER, that
(x) such Common Stock or options shall be issued pursuant to a written agreement
in form and substance satisfactory to the Requisite Holders and (y)
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the aggregate amount of all such Common Stock or Common Stock which may be
acquired upon the exercise of such options shall not exceed an aggregate of 10%
of the Common Stock (on a Fully- Diluted Basis).
"EXECUTIVE OFFICER" shall mean, with respect to the
Corporation, its Chairman or President.
"EXERCISE FORM" shall mean the exercise form attached as Annex A to
a Warrant.
"EXERCISE PRICE" shall mean $1.00 per share of Common Stock, subject
to adjustment from time to time in the manner provided in Section 4.4.
"EXPIRATION DATE" shall mean the seven year anniversary
of the Closing Date.
"FINANCIAL OFFICER" shall mean the Chief Financial
Officer, Treasurer or Assistant Treasurer of the Corporation.
"FISCAL YEAR" shall mean, with respect to the Corporation, the
one-year period ending on December 31 of any year.
"FULLY DILUTED BASIS" means, as applied to the calculation of the
number of shares of Common Stock outstanding at any time, after giving effect to
(a) all shares of Common Stock outstanding at the time of determination, (b) all
shares of Common Stock issuable upon the exercise of any option, warrant
(including the Warrants) or similar right to purchase Common Stock outstanding
at the time of determination and then exercisable at a per share price equal to
or less than the price per share of Common Stock being determined and (c) all
shares of Common Stock issuable upon the conversion or exchange of any security
convertible into or exchangeable for shares of Common Stock outstanding at the
time of determination and then so convertible or exchangeable at a conversion or
exchange price equal to or less than the price per share of Common Stock being
determined. Such calculation will not be made in accordance with the "treasury
method."
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"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"GOVERNMENTAL AUTHORITY" shall mean any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case whether of the United States of
America or foreign.
"HOLDER" shall have the meaning given to such term in Section
3.1(c).
"ING" shall have the meaning given to such term in the Preamble.
"LIQUIDATION EQUIVALENT" shall mean the per share cash amount,
determined in accordance with the Valuation Procedure, which would be paid to
holders of Common Stock outstanding (on a Fully-Diluted Basis) on the date of
determination assuming (a) the actual receipt by the Corporation or Major
Stockholder, as applicable, of the full amount of the consideration proposed to
be paid or exchanged for the capital stock or assets of the Corporation in the
relevant transaction (net of reasonable expenses incurred in connection with
such transaction which are payable to Persons who or which are not Affiliates of
Major Stockholder) and (b) the liquidation of the Corporation and all of its
Subsidiaries immediately thereafter. For the purposes of determining the
Liquidation Value, (i) the exercise price of options or warrants to acquire
Common Stock which are deemed to have been exercised for the purpose of
determining the number of shares of Common Stock outstanding on a fully Diluted
Basis, shall be deemed to have been received by the Corporation, (ii) the
liquidation preference or indebtedness, as the case may be, represented by
securities which are deemed exercised for or converted into Common Stock for the
purpose of determining the number of shares of Common Stock outstanding on a
Fully Diluted Basis, shall be deemed to have been eliminated or cancelled and
(iii) any limitation in respect of any class of shares of Common Stock,
including as to transfer, payments of dividends, voting and other rights shall
be deemed to have been eliminated or cancelled. If any transaction requiring the
determination and payment of the Liquidation Equivalent shall involve a purchase
-7-
price adjustment based on the closing balance sheet of the Corporation or any of
its Subsidiaries as of the closing date of such transaction, which results in a
reduction in the purchase price, each Holder shall be obligated to remit to the
purchaser such Holder's PRO RATA share of such amount, unless the amount of such
adjustment has not been finally determined within 180 days following the closing
of such transaction, in which case each Holder shall be obligated to remit to
such purchaser the lesser of (x) such Holder's PRO RATA share of the amount of
such adjustment (as finally determined) or (y) an amount equal to 5% of the
aggregate net proceeds received by such Holder at such closing. Each Holder
shall be entitled to receive its full PRO RATA share of any adjustment in favor
of the sellers in a transaction involving a purchase price adjustment when and
as paid to all such Holders.
"MAJOR STOCKHOLDER" shall mean collectively Charterhouse and Dillon
Read and any reference herein to "Major Stockholder" refers to Charterhouse and
Dillon Read together as if they were one entity.
"MARKET PRICE" shall mean, with respect to a share of Common Stock
on any Business Day:
(a) if the Common Stock is Publicly Traded at the time of
determination, the average of the closing prices for the Common Stock on
all domestic securities exchanges on which such security may at the time
be listed, or, if there have been no sales on any such exchange on such
day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day such security is not
so listed, the average of the representative bid and asked prices quoted
on the NASDAQ System as of 4:00 P.M., New York time, on such day, or if on
any day such security is not quoted in the NASDAQ System, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case
averaged over a period of twenty-one (21) days consisting of the day as of
which "Market Price" is being determined and the twenty (20) consecutive
Business Days prior to such day; or
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(b) if the Common Stock is not Publicly Traded at the time of
determination, for the purposes of Article 4 only, the fair value of one
share of Common Stock, determined in good faith by the Board of Directors
of the Corporation exercising reasonable business judgment; PROVIDED,
HOWEVER, if the Common Stock is not Publicly Traded at the time of
determination for all other purposes, the Market Price shall be the Market
Value Per Share.
"MARKET VALUE" shall mean the highest price that would be paid for
the entire common equity interest in the Corporation on a going-concern basis in
a single arm's-length transaction between a willing buyer and a willing seller
(neither acting under compulsion), using valuation techniques then prevailing in
the securities industry and always determined in accordance with the Valuation
Procedures, and assuming full disclosure and understanding of all relevant
information and a reasonable period of time for effectuating such sale. For the
purposes of determining the Market Value, (i) the exercise price of options or
warrants to acquire Common Stock which are deemed to have been exercised for the
purpose of determining the number of shares of Common Stock outstanding on a
Fully Diluted Basis, shall be deemed to have been received by the Corporation,
(ii) the liquidation preference or indebtedness, as the case may be, represented
by securities which are deemed exercised for or converted into Common Stock for
the purpose of determining the number of shares of Common Stock outstanding on a
Fully Diluted Basis, (iii) any limitation in respect of any shares of Common
Stock, including as to their transfer, dividend payments, voting and other
rights and (iv) any illiquidity arising by contract law in respect of the shares
of Common Stock and any voting rights or control rights amongst the
Stockholders, shall be deemed to have been eliminated or cancelled.
"MARKET VALUE PER SHARE" shall mean the price per share of Common
Stock obtained by dividing (A) the Market Value by (B) the number of shares of
Common Stock outstanding (on a Fully- Diluted Basis) at the time of
determination.
"MINIMUM CALL PRICE" shall mean an amount equal to:
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(i) from the Closing Date to (and including) the twelve-month
anniversary of the Closing Date, $7.74 per share of Common Stock outstanding (on
a Fully Diluted Basis);
(ii) from (but excluding) the twelve-month anniversary of the
Closing Date to (and including) the eighteen-month anniversary of the Closing
Date, $9.10 per share of Common Stock outstanding (on a Fully Diluted Basis);
(iii) from (but excluding) the eighteen month anniversary of the
Closing Date to (and including) the twenty-four month anniversary of the Closing
Date, $10.32 per share of Common Stock outstanding (on a Fully Diluted Basis);
and
(iv) from (but excluding) the twenty-four month anniversary of the
Closing Date until the Expiration Date, the Call Price.
"NASDAQ" shall mean the NASDAQ National Market or the
NASDAQ Smallcap Market.
"OPTIONS" shall have the meaning given to such term in Section
4.4.1(b) hereof.
"ORGANIZATIONAL DOCUMENTS" shall mean, with respect to any Person,
each instrument or other document that (a) defines the existence of such Person,
including its articles or certificate of incorporation, as filed or recorded
with an applicable Governmental Authority or (b) governs the internal affairs of
such Person, including its by-laws, in each case as amended, supplemented or
restated.
"OTHER ANTI-DILUTION INSTRUMENTS" shall mean any option, warrant,
convertible security or other rights to acquire Common Stock, whether
outstanding as of the date hereof or hereafter issued, together with any
agreements relating thereto, which provide for anti-dilution or other
adjustments in the number of shares of Common Stock and/or exercise or
conversion price.
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"OWN" shall mean, with respect to any security, to own, hold or
Control. "OWNS" and "OWNERSHIP" shall have correlative meanings.
"PERSON" shall mean and include any natural person, company,
partnership, joint venture, corporation, business trust or unincorporated
organization.
"PROPORTIONATE PERCENTAGE" shall mean, with respect to any Holder at
any time, the quotient obtained by dividing (a) the aggregate number of Warrant
Shares then held by such Holder by (b) the total number of shares of Common
Stock then outstanding (on a Fully-Diluted Basis).
"PUBLICLY TRADED" shall mean, with respect to any security, that
such security is (a) listed on a domestic securities exchange, (b) quoted on
NASDAQ or (c) traded in the domestic over-the-counter market, which trades are
reported by the National Quotation Bureau, Incorporated.
"QUALIFIED PUBLIC OFFERING" shall mean an underwritten public
offering of the Common Stock registered under the Securities Act, (a) which
offering results in net proceeds to the Corporation of at least $10,000,000, and
(b) after which the shares of Common Stock are Publicly Traded.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights
Agreement, dated as of March 31, 1994, as amended by Amendment No. 1 thereto,
dated as of the date hereof, among the Corporation, the Investors (as defined
therein) party thereto, David Cornell, Norman Cox and ING.
"REGULATED HOLDER" shall mean any Holder subject to any provisions
of Applicable Law (including without limitation the Bank Holding Company Act of
1956, as amended, (12 U.S.C. ss. 1841 ET SEQ.) and the regulations promulgated
thereunder) limiting the quantity or kind of securities (or any class thereof)
of the Corporation which such Holder is permitted to Own.
"REQUISITE HOLDERS" shall mean Holders holding Warrants
or Warrant Shares representing at least a majority of all Warrant
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Shares issued or issuable upon exercise of Warrants outstanding on the date of
determination.
"SECTION 7.4 TRANSACTION" shall have the meaning given to such term
in Section 7.4.
"SECURITIES ACT" shall mean the Securities Act of 1933,
as amended.
"SECURITIES EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
"SELLER NOTES" shall mean promissory notes issued by a transferee
(or an Affiliate thereof) as consideration in connection with any Transfer of
stock and/or other assets.
"STOCKHOLDERS AGREEMENT" shall mean the Amended and Restated
Stockholders Agreement, dated as of the date hereof, among the Corporation, the
Investors (as defined therein) party thereto, David Cornell, Norman Cox and ING.
"SUBSIDIARY" shall mean, at any time, any Person of which more than
fifty percent (50%) of the shares of stock or other interests entitled to vote
in the election of directors or comparable Persons performing similar functions
(excluding shares or other interests entitled to vote only upon the failure to
pay dividends thereon or other contingencies) are at the time owned directly or
indirectly through one or more Subsidiaries, by the Corporation.
"TRANSFER" shall mean any sale, transfer, assignment, or other
disposition of any interest in, with or without consideration, any security
(other than a pledge or hypothecation).
"VALUATION PROCEDURE" shall mean, with respect to the determination
of any amount or value required to be determined in accordance with such
procedure, a determination (which shall be final and binding on the Corporation
and the Holders) made (i) by agreement among the Corporation and the Requisite
Holders within thirty (30) days following the event requiring such determination
or (ii) in the absence of such an agreement, by an Appraiser (as
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defined below) selected in accordance with the further provisions of this
definition. If required, an Appraiser shall be selected within 10 days following
the expiration of the 30-day period referred to above, either by agreement among
the Corporation and the Requisite Holders or, in the absence of such agreement,
by lot from a list of four potential Appraisers remaining after the Corporation
nominates three, the Requisite Holders nominate three, and each side eliminates
one potential Appraiser. The Appraiser shall be instructed by the Corporation
and the Requisite Holders to make its determination within twenty (20) days of
its selection. The fees and expenses of an Appraiser selected hereunder shall be
borne by the Corporation. As used herein, "Appraiser" shall mean (a) with
respect to a determination of Market Value, a nationally-recognized investment
banking firm and (b) with respect to a determination of Liquidation Value (or
any other valuation required hereunder), a firm of the type generally considered
to be qualified in making determinations of the type required.
"WARRANT" shall have the meaning given to such term in
Section 3.1(a).
"WARRANT REGISTER" shall have the meaning given to such term in
Section 3.1(c).
"WARRANT SHARES" shall mean (a) the shares of Common Stock issued or
issuable upon exercise of a Warrant in accordance with Section 4.1 or upon
exchange of a Warrant in accordance with Section 4.2, (b) all other securities
or other property issued or issuable upon any such exercise or exchange in
accordance with this Agreement and (c) any securities of the Corporation
distributed with respect to the securities referred to in the preceding clauses
(a) and (b). As used in this Agreement, the phrase "Warrant Shares then held" by
any Holder or Holders shall mean Warrant Shares held at the time of
determination by such Holder or Holders, and shall include Warrant Shares
issuable upon exercise of Warrants held at the time of determination by such
Holder or Holders.
SECTION 1.2. INTERPRETATION. Unless the context of
this Agreement clearly requires otherwise, references to the
plural include the singular, to the singular include the plural,
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and to the part include the whole. The term "including" is not limiting and the
term "or" has the inclusive meaning represented by the term "and/or." The words
"hereof," "herein," "hereunder," and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this Agreement.
References to "Articles", "Sections," "Exhibits" and "Schedules" are to
Articles, Sections and Schedules, respectively, of this Agreement, unless
otherwise specifically provided. Terms defined herein may be used in the
singular or the plural.
ARTICLE II
ISSUANCE OF WARRANT; CLOSING
SECTION 2.1. ISSUANCE OF WARRANT. On the Closing Date, the
Corporation hereby agrees to issue a Warrant registered in the name of ING
evidencing the right to purchase, on or before 5:00 p.m. on the Expiration Date,
a total of 162,500 shares of Class B Common Stock of the Corporation at a price
per share equal to the Exercise Price. At the date hereof, such shares of Class
B Common Stock represent 5.0966% of the outstanding shares of Common Stock and
4.97% of the outstanding shares of Common Stock on a fully diluted basis (which
determination will (a) assume the exercise of all outstanding Options or
Convertible Securities, whether or not currently exercisable or convertible, and
irrespective of the exercise or conversion price and other related terms, and
(b) not be made in accordance with the "treasury method"). The number of Warrant
Shares which may be purchased upon exercise of such Warrant and the Exercise
Price to be paid for such Warrant Shares are subject to adjustment in the manner
provided in Article IV.
SECTION 2.2. CLOSING. The closing (the "Closing") for the issuance,
sale and transfer of the Warrant shall take place simultaneously with the
execution and delivery of this Agreement on the date (the "Closing Date")
hereof.
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ARTICLE III
FORM; EXCHANGE FOR WARRANTS; TRANSFER; TAXES
SECTION 3.1. FORM OF WARRANT. (a) Each Warrant issued hereunder
shall be in the form of Exhibit B (each, a "Warrant") and shall be executed on
behalf of the Corporation by an Executive Officer and attested to by a Financial
Officer. The signature of any officer on any Warrant may be manual or facsimile.
Upon initial issuance, each Warrant shall be dated as of the date of
counter-signature thereof by the Corporation.
(b) Each Warrant and each certificate representing Warrant
Shares shall include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT PURSUANT TO AN EXEMPTION FROM, OR OTHERWISE IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF SUCH ACT. IN ADDITION, THE
SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE LIMITATIONS ON TRANSFER SET
FORTH IN THE WARRANT ISSUANCE AGREEMENT DATED AS OF MARCH 14, 1995, BETWEEN THE
CORPORATION AND INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION. A COPY OF
THE WARRANT ISSUANCE AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL
OFFICE OF THE CORPORATION AND WILL BE FURNISHED WITHOUT CHARGE TO THE RECORD
HOLDER HEREOF UPON WRITTEN REQUEST TO THE CORPORATION.
(c) Each Warrant issued, exchanged or transferred hereunder
shall be registered in a warrant register (the "Warrant Register"). The Warrant
Register shall set forth the number of each Warrant, the name and address of the
holder (a "Holder") thereof, and the original number of Warrant Shares
purchasable upon the exercise thereof. The Warrant Register will be maintained
by the Corporation and will be available for inspection by any Holder at the
principal office of the Corporation or such other location as the Corporation
may designate to the Holders in the manner set forth in Section 8.1. The
Corporation shall be entitled to treat the Holder of any
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Warrant as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the
part of any other person. The Corporation shall not be liable for complying with
a request by a fiduciary or nominee of a fiduciary to register a transfer of any
Warrant which is registered in the name of such fiduciary or nominee, unless
made with the actual knowledge that such fiduciary or nominee is committing a
breach of trust in requesting such registration of transfer, or with knowledge
of such facts that the Corporation's participation therein amounts to bad faith.
SECTION 3.2. EXCHANGE OF WARRANTS FOR WARRANTS. (a) The Holder may
exchange any Warrant issued hereunder for another Warrant or Warrants of like
kind and tenor representing in the aggregate the right to purchase the same
number of Warrant Shares which could be purchased pursuant to the Warrant being
so exchanged. In order to effect an exchange permitted by this Section 3.2, the
Holder shall deliver to the Corporation such Warrant accompanied by a written
request signed by the Holder thereof specifying the number and denominations of
Warrants to be issued in such exchange and the names in which such Warrants are
to be issued. Within ten (10) Business Days of receipt of such a request, the
Corporation shall issue, register and deliver to the Holder thereof each Warrant
to be issued in such exchange.
(b) Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the Holder being satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any Warrant, and in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Corporation (if the Holder is a creditworthy financial
institution or other creditworthy institutional investor its own agreement being
satisfactory) or, in the case of any such mutilation, upon surrender of such
Warrant, the Corporation shall (at its expense) execute and deliver in lieu of
such Warrant a new Warrant of like kind representing the same rights represented
by and dated the date of such lost, stolen, destroyed or mutilated Warrant. Any
such new Warrant shall constitute an original contractual obligation of the
Corporation, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant shall be at any time enforceable by any Person.
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(c) The Corporation shall pay all taxes (other than any
applicable income or similar taxes payable by a Holder of a Warrant)
attributable to an exchange of a Warrant pursuant to this Section 3.2; PROVIDED,
HOWEVER, that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance of any Warrant in a
name other than that of the Holder of the Warrant being exchanged.
SECTION 3.3. TRANSFER OF WARRANT. (a) Subject to Section 3.3(c)
hereof, each Warrant may be transferred by the Holder thereof by delivering to
the Corporation such Warrant accompanied by a properly completed Assignment
Form. Within ten (10) Business Days of receipt of such Assignment Form the
Corporation shall issue, register and deliver to the Holder, subject to Section
3(c) thereof a new Warrant or Warrants of like kind and tenor representing in
the aggregate the right to purchase the same number of Warrant Shares which
could be purchased pursuant to the Warrant being transferred. In all cases of
transfer by an attorney, the original power of attorney, duly approved, or a
copy thereof, duly certified, shall be deposited and remain with the
Corporation. In case of transfer by executors, administrators, guardians or
other legal representatives, duly authenticated evidence of their authority
shall be produced and may be required to be deposited and remain with the
Corporation in its discretion.
(b) Each Warrant issued in accordance with this Section 3.3
shall bear the restrictive legend set forth in Section 3.1(b), unless the Holder
or transferee thereof supplies to the Corporation an opinion of counsel,
reasonably satisfactory to the Corporation, that the restrictions described in
such legend are no longer applicable to such Warrant.
(c) The transfer of Warrants and Warrant Shares shall be
permitted, so long as such transfer is pursuant to a transaction that complies
with, or is exempt from, the provisions of the Securities Act, and the
Corporation may require an opinion of counsel (which may be internal counsel to
a Holder) in form and substance reasonably satisfactory to it to such effect
prior to effecting any transfer of Warrants or Warrant Shares; PROVIDED,
HOWEVER, that prior to the filing by the Corporation of
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a registration statement with the Securities and Exchange Commission pursuant to
the requirements of either the Securities Act or the Securities Exchange Act,
ING shall not Transfer to any Person (other than an Affiliate of ING) Warrants
or Warrant Shares representing less than 25% of the Warrant Shares (issued or
represented by outstanding Warrants) held by ING as of the Closing Date, except
with the prior consent of the Corporation.
ARTICLE IV
EXERCISE OF WARRANT; EXCHANGE FOR WARRANT SHARES
SECTION 4.1. EXERCISE OF WARRANTS. On any Business Day prior to the
Expiration Date, a Holder may exercise a Warrant, in whole or in part, by
delivering to the Corporation such Warrant accompanied by a properly completed
Exercise Form and a check in an aggregate amount equal to the product obtained
by multiplying (a) the Exercise Price by (b) the number of Warrant Shares being
purchased; PROVIDED, HOWEVER, in the event the Holder exercises a Warrant in
connection with or immediately prior to a sale by the Holder of Warrant Shares,
in lieu of paying the applicable Exercise Price therefor, the Holder may elect
to receive that number of Warrant Shares which is equal to the number of shares
for which this Warrant is being exercised less the number of shares having a
Market Value equal to such applicable Exercise Price, where such Market Value
per Share shall be equal to the price per share at which the Holder is selling
Warrant Shares. Any partial exercise of a Warrant shall be for a whole number of
Warrant Shares only.
SECTION 4.2. EXCHANGE FOR WARRANT SHARES. On any Business Day prior
to the Expiration Date, a Holder may exchange a Warrant, in whole or in part,
for Warrant Shares by delivering to the Corporation such Warrant accompanied by
a properly completed Exchange Form. The number of shares of Common Stock to be
received by a Holder upon such exchange shall be equal to (a) the number of
Warrant Shares allocable to the portion of the Warrant being exchanged (the
"Allocable Number"), as specified by such Holder in the Exchange Form less (b)
the number of shares equal to the quotient obtained by dividing (i) the product
obtained by multiplying (A) the Exercise Price by (B) the
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Allocable Number of Warrant Shares by (ii) the Market Price as of the close of
business on the date of delivery of the Exchange Form. The Allocable Number need
not be a whole number.
SECTION 4.3. ISSUANCE OF COMMON STOCK. (a) Within ten (10) Business
Days following the delivery date (the "Delivery Date") of (i) an Exercise Form
or Exchange Form in accordance with Section 4.1 or 4.2, (ii) a Warrant and (iii)
any required payments of the Exercise Price, the Corporation shall issue and
deliver to the Holder a certificate or certificates, registered in the name or
names set forth on such notice, representing the Warrant Shares being purchased
or to be received upon such exchange.
(b) If a Holder shall exercise or exchange a Warrant for less
than all of the Warrant Shares which could be purchased or received thereunder,
the Corporation shall issue to the Holder, within ten (10) Business Days of the
Delivery Date, a new Warrant evidencing the right to purchase the remaining
Warrant Shares. In the case of an exchange pursuant to Section 4.2, the number
of remaining Warrant Shares shall be the original number of Warrant Shares
subject to the Warrant so exchanged reduced by the Allocable Number of Warrant
Shares. Each Warrant surrendered pursuant to Section 4.1 or 4.2 shall be
canceled.
(c) The Corporation shall not be required to issue fractional
shares of Common Stock upon the exercise or exchange of a Warrant. If any
fraction of a share of Common Stock would be issuable on the exercise or
exchange of any Warrant, the Corporation may, in lieu of issuing such fractional
share, pay to such Holder for any such fraction of a share an amount in cash
equal to the product obtained by multiplying (i) such fraction by (ii) the
Market Price in effect on the Delivery Date.
(d) The Corporation shall pay all taxes (other than any
applicable income or similar taxes payable by a Holder of a Warrant)
attributable to the initial issuance of Warrant Shares upon the exercise or
exchange of a Warrant; PROVIDED, HOWEVER, that the Corporation shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance of any Warrant or any certificate for Warrant Shares
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in a name other than that of the Holder of the Warrant being exercised or
exchanged.
(e) If permitted by Applicable Law, the person in whose name
any certificate for shares of Common Stock is issued upon exercise or exchange
of a Warrant shall for all purposes be deemed to have become the holder of
record of such shares on the Delivery Date, irrespective of the date of delivery
of such certificate, except that, if the Delivery Date is a date when the stock
transfer books of the Corporation are closed, such person shall be deemed to
have become the holder of record of such shares at the close of business on the
next succeeding date on which the stock transfer books are open.
(f) If any shares of Common Stock required to be reserved for
purposes of the exercise or exchange of a Warrant require registration or
approval under any Applicable Law, the Corporation will in good faith and as
expeditiously as possible cause such shares to be registered or seek such
approval, as applicable. The Corporation may suspend the exercise of any Warrant
so affected for the period during which such registration or approval is
required but not in effect.
(g) Any Exercise Form or Exchange Form delivered under Section
4.1 or 4.2 may condition the exercise or exchange of any Warrant on the
consummation of a sale contemplated by Section 5.2 hereof, a "tag-along" sale
contemplated by Section 5 of the Stockholders Agreement, or on the consummation
of a sale of Warrant Shares pursuant to a public offering registered under the
Securities Act, and such exercise or exchange shall not be deemed to have
occurred except concurrently with the consummation of any such sale.
SECTION 4.4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT
SHARES. The number and kind of Warrant Shares purchasable upon exercise of each
Warrant shall be subject to adjustment from time to time in accordance with this
Section 4.4.
SECTION 4.4.1. ADJUSTMENT UPON ISSUANCE OF COMMON
STOCK. (a) If, at any time after the Closing Date, the
Corporation shall issue or sell (or, in accordance with Section
4.4.1(b), shall be deemed to have issued or sold) any shares of
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Common Stock without consideration or for a consideration per share less than
the Market Price determined as of the date of such issuance or sale, then,
effective immediately upon such issuance or sale, the Exercise Price shall be
reduced to an amount equal to the product obtained by multiplying (A) the
Exercise Price in effect immediately prior to such issuance or sale, by (B) a
fraction, the numerator of which shall be the sum of (x) the product obtained by
multiplying (1) the number of shares of Common Stock outstanding (on a
Fully-Diluted Basis) immediately prior to such issuance or sale by (2) the
Market Price as of the date of such issuance or sale, and (y) the consideration,
if any, received by the Corporation upon such issuance or sale, and the
denominator of which shall be the product obtained by multiplying (C) the number
of shares of Common Stock outstanding (on a Fully-Diluted Basis) immediately
after such issuance or sale, by (D) such Market Price. Upon each such adjustment
of the Exercise Price hereunder, the number of Warrant Shares which may be
obtained upon exercise of such Warrant shall be increased to the number of
shares determined by multiplying (A) the number of Warrant Shares which could be
obtained upon exercise of such Warrant immediately prior to such adjustment by
(B) a fraction, the numerator of which shall be the Exercise Price in effect
immediately prior to such adjustment and the denominator of which shall be the
Exercise Price in effect immediately after such adjustment.
(b) For the purpose of determining the adjusted Exercise Price
under Section 4.4.1(a), the following shall be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Corporation in any manner
issues or grants any rights or options to subscribe for or to purchase (A)
Common Stock or (B) any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being
herein called "Convertible Securities"), and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon
conversion or exchange of such Convertible Securities is less than the
Market Price determined as of the date of issuance or grant of such
Options, then the total maximum number of shares of
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Common Stock issuable upon the exercise of such Options (or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options) shall be deemed to
be outstanding and to have been issued and sold by the Corporation for
such price per share. For purposes of this paragraph, the price per share
for which Common Stock is issuable upon exercise of Options or upon
conversion or exchange of Convertible Securities issuable upon exercise of
Options shall be determined by dividing (A) the total amount, if any,
received or receivable by the Corporation as consideration for the issuing
or granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon the exercise of
all such Options, plus in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon issuance or sale of
such Convertible Securities and the conversion or exchange thereof, by (B)
the total maximum number of shares of Common Stock issuable upon exercise
of such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options. No further
adjustment of the Exercise Price shall be made upon the actual issuance of
such Common Stock or of such Convertible Securities upon the Exercise of
such Options or upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Corporation in any
manner issues or sells any Convertible Securities having an exercise or
conversion or exchange price per share of Common Stock which is less than
the Market Price determined as of the date of such issuance or sale, then
the maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Corporation for such
lower price per share. For purposes of this paragraph, the price per share
for which Common Stock is issuable upon conversion or exchange of
Convertible Securities is determined by dividing (A) the total amount
received or receivable by the Corporation as consideration for the
issuance or sale of
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such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (B) the total maximum number of shares
of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment of the Exercise Price shall
be made upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities, and if any such issuance or sale
of such Convertible Securities is made upon exercise of any Options for
which adjustments of the Exercise Price had been or are required to be
made pursuant to other provisions of this Section 4.4.1(b), no further
adjustment of the Exercise Price shall be made by reason of such issuance
or sale.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If the purchase
price provided for in any Options, the additional consideration, if any,
payable upon the issuance, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock change at any time, then
the Exercise Price in effect at the time of such change shall be
readjusted to the Exercise Price which would have been in effect at such
time had such Options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued
or sold and the number of Warrant Shares shall be correspondingly
readjusted.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. Upon the expiration of any Option or the termination of any
right to convert or exchange any Convertible Securities without the
exercise of such Option or right, the Exercise Price then in effect and
the number of Warrant Shares acquirable hereunder shall be adjusted to the
Exercise Price and the number of shares which would have been in effect at
the time of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such expiration
or termination, never been issued.
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(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, then the consideration received therefor
shall be deemed to be the net amount received by the Corporation therefor.
If any Common Stock, Options or Convertible Securities are issued or sold
for consideration other than cash, then the amount of the consideration
other than cash received by the Corporation shall be the fair value of
such consideration determined by the Board of Directors of the
Corporation.
(vi) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or
for the account of the Corporation or any Subsidiary of the Corporation,
and the disposition of any shares so owned or held shall be considered an
issue or sale of Common Stock.
(vii) RECORD DATE. If the Corporation takes a record of the holders
of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed
to be the date of the issuance or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend
or the making of such other distribution or the date of the granting of
such right of subscription or purchase, as the case may be.
SECTION 4.4.2. SUBDIVISIONS OR COMBINATIONS OF COMMON STOCK. If, at
any time after the Closing Date, (a) the number of shares of Common Stock
outstanding is increased by a dividend or other distribution payable in shares
of Common Stock or by a subdivision or split-up of shares of Common Stock or (b)
the number of shares of Common Stock outstanding is decreased by a combination
or reverse stock split of shares of Common Stock, then, in each case, effective
as of the effective date of such event retroactive to the record date, if any,
of such event, (i) the Exercise Price shall be adjusted to a price determined by
multiplying (A) the Exercise Price in effect immediately prior to such event by
(B) a fraction, the numerator of which shall be the
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number of shares of Common Stock outstanding immediately prior to such event and
the denominator of which shall be the number of shares of Common Stock
outstanding after giving effect to such event, and (ii) the number of Warrant
Shares subject to purchase upon the exercise of any Warrant shall be adjusted
effective at such time, to a number equal to the product of (A) the number of
Warrant Shares subject to purchase upon the exercise of such Warrant immediately
prior to such event by (B) a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding after giving effect to such event
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such event.
SECTION 4.4.3. CAPITAL REORGANIZATION OR CAPITAL RECLASSIFICATIONS.
If, at any time after the Closing Date, there shall be any capital
reorganization or any reclassification of the capital stock of the Corporation
(other than a change in par value or from par value to no par value or from no
par value to par value or as a result of a stock dividend or subdivision,
split-up or combination of shares), then in each case the Corporation shall
cause effective provision to be made so that each Warrant shall, effective as of
the effective date of such event retroactive to the record date, if any, of such
event, be exercisable or exchangeable for the kind and number of shares of
stock, other securities, cash or other property to which a holder of the number
of shares of Common Stock deliverable upon exercise or exchange of such Warrant
would have been entitled upon such reorganization or reclassification and any
such provision shall include adjustments in respect of such stock, securities or
other property that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Agreement with respect to such Warrant.
SECTION 4.4.4. CONSOLIDATIONS AND MERGERS. If, at any time after the
Closing Date, the Corporation shall consolidate with, merge with or into, or
sell all or substantially all of its assets or property to, another corporation,
then the Corporation shall cause effective provision to be made so that each
Warrant shall, effective as of the effective date of such event retroactive to
the record date, if any, of such event, be exercisable or exchangeable for the
kind and number of shares of stock, other securities, cash or other property to
which a holder
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of the number of shares of Common Stock deliverable upon exercise or exchange of
such Warrant would have been entitled upon such event.
SECTION 4.4.5. NOTICE; CALCULATIONS; ETC. Whenever the Exercise
Price and the number of Warrant Shares shall be adjusted as provided in this
Section 4.4, the Corporation shall provide to each Holder a statement, signed by
an Executive Officer, describing in detail the facts requiring such adjustment
and setting forth a calculation of the Exercise Price and the number of Warrant
Shares applicable to each Warrant after giving effect to such adjustment. All
calculations under this Section 4.4 shall be made to the nearest one hundredth
of a cent ($.0001) or to the nearest one-tenth of a share, as the case may be.
Adjustments pursuant to Sections 4.4.1, 4.4.2 and 4.4.3 shall apply to
successive events or transactions of the type covered thereby.
SECTION 4.4.6. CERTAIN ADJUSTMENTS. (a) Subject to the limitations
set forth in Section 7.4, the Corporation may make such reductions in the
Exercise Price or increase in the number of Warrant Shares to be received by any
Holder upon the exercise or exchange of a Warrant, in addition to those
adjustments required by this Section 4.4, as it in its sole discretion shall
determine to be advisable in order that any consolidation or subdivision of the
Common Stock, or any issuance wholly for cash of any shares of Common Stock, or
any issuance wholly for cash of shares of Common Stock or securities which by
their terms are convertible into or exchangeable for shares of Common Stock, or
any stock dividend, or any issuance of rights, options or warrants hereinafter
made by the Corporation to the holders of its Common Stock shall not be taxable
to such holders.
(b) In the event that the Corporation in any manner issues or
grants Options or Convertible Securities, or any other transaction,
circumstances or events occur which give rise to anti-dilution adjustments under
Other Anti-Dilution Instruments, but not the Warrants, then the Corporation will
promptly make proportional, equitable and corresponding adjustments in the
number of shares of Common Stock issuable upon exercise of the Warrants to
protect the Holders against dilution as a result of such events.
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SECTION 4.4.7. EXCLUDED TRANSACTIONS. Notwithstanding
any other provision of this Section 4.4, no adjustment shall be
made pursuant to this Section 4.4 in respect of the issuance of
Excluded Securities.
SECTION 4.4.8. ADJUSTMENT RULES. (a) Any adjustments pursuant to
this Section 4.4 shall be made successively whenever an event referred to herein
shall occur, except that, notwithstanding any other provision of this Section
4.4, no adjustment shall be made to the number of shares of Common Stock or to
the Exercise Price if such adjustment represents less than 1% of the number of
shares previously required to be so delivered, but any lesser adjustment shall
be carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to 1% or more of the number of shares to be so delivered.
(b) Notwithstanding any other provision of this Agreement, the
actual amount payable by a Holder in connection with the exercise of a Warrant
hereunder shall not be less than the par value per share of the Common Stock,
unless and until the Exercise Price, as adjusted pursuant to this Section 4.4,
has been reduced to an amount less than 1% of the par value per share of the
Common Stock. Before taking any action which would cause an adjustment pursuant
to this Section 4.4 which would reduce the Exercise Price below 1% of the par
value per share, the Corporation shall be required to take any corporate action
which may be necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable Warrant Shares at the Exercise Price as so
adjusted.
SECTION 4.5. REGULATED HOLDERS. If, in the written opinion of
counsel to any Regulated Holder (which may be internal counsel), the receipt by
such Regulated Holder of Warrant Shares (or any security included therein) upon
any exercise or exchange pursuant to this Article IV would cause such Regulated
Holder to violate any provision of Applicable Law with respect to its Ownership
of voting securities of the Corporation, then the Corporation will use its best
efforts (including without limitation using its best efforts to cause its
Organizational Documents to be amended) to create an Equivalent Nonvoting
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Security with respect to Warrant Shares (or any such security included therein),
and such Regulated Holder shall be entitled to receive upon such exercise or
exchange, in lieu of such number (as it shall specify) of shares or other units
of Warrant Shares (or any such security included therein) otherwise receivable
by such Regulated Holder, the same number of shares or other units of such
Equivalent Nonvoting Security.
ARTICLE V
CERTAIN OTHER RIGHTS
SECTION 5.1. PAYMENTS IN RESPECT OF DIVIDENDS AND DISTRIBUTIONS. (a) If,
at any time prior to the earlier of (i) the Expiration Date and (ii) the
consummation of a Qualified Public Offering, the Corporation pays any dividend
or makes any distribution (whether in cash, property or securities of the
Corporation) on its capital stock which does not result in an adjustment under
Section 4.4, then the Corporation shall simultaneously pay to the Holder of each
Warrant, the dividend or distribution which would have been paid to such Holder
on the Warrant Shares receivable upon the exercise in full of such Warrant had
such Warrant been fully exercised immediately prior to the record date for such
dividend or distribution or, if no record is taken, the date as of which the
record holders of Common Stock entitled to such dividend or distribution are to
be determined.
(b) If, in the written opinion of counsel to any Regulated
Holder (which counsel may be internal counsel), the distribution to such
Regulated Holder of any security of the Corporation pursuant to paragraph (a) of
this Section 5.1 would cause such Regulated Holder to violate any provision of
Applicable Law with respect to its Ownership of voting securities of the
Corporation, then the Corporation will use its best efforts (including, without
limitation, using its best efforts to cause its Organizational Documents to be
amended) to create an Equivalent Nonvoting Security with respect to the security
to be distributed and such Regulated Holder shall be entitled to receive, in
lieu of such number (as it shall specify) of shares or other units of the
security to be distributed pursuant to
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paragraph (a) of this Section 5.1. otherwise receivable by such
Regulated Holder, the same number of shares or other units of
such Equivalent Nonvoting Security.
SECTION 5.2. CALL RIGHTS. (a) Subject to paragraph (b) of this
Section 5.2, the Corporation shall have the right, simultaneously with the
consummation of a Qualified Public Offering, to purchase (subject to paragraph
(e) of this Section 5.2) all (but not less than all) of the Warrant Shares
(issued or represented by outstanding Warrants) held by all Holders (the "Call")
at a price per Warrant Share equal to the Call Price (less, in the case of a
repurchase of Warrants, the per share exercise price). The Corporation may
exercise the Call by delivering at least 10 days' prior written notice (the
"Call Notice") to the Holders. Upon delivery of the Call Notice, the Call Price
shall be determined.
(b) The Corporation may only exercise the Call under this
Section 5.2 if the Call Price equals or exceeds the Minimum Call Price.
(c) The closing (the "Call Closing") of the purchase of
Warrant Shares and Warrants pursuant to the Call shall take place simultaneously
with the closing of the Qualified Public Offering at a mutually agreeable place.
At the Call Closing (subject to paragraph (e) of this Section 5.2), the
Corporation shall purchase from the Holders, and the Holders shall sell to the
Corporation, all of the Warrants and Warrant Shares then held by the Holders at
a price per share equal to the Call Price
(d) At the Call Closing (subject to paragraph (e) of this
Section 5.2), each Holder shall deliver to the Corporation its Warrant Shares
(or Warrants representing Warrant Shares), against payment of an amount equal to
the product obtained by multiplying (i) the number of such Warrant Shares (or
Warrant Shares represented by Warrants) being repurchased by (ii) the Call Price
(less, in the case of the repurchase of Warrants, the aggregate exercise price
for the Warrant Shares represented thereby), by cashier's or certified check of
a creditworthy bank payable to such Holder or, at the option of such Holder, by
wire
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transfer of immediately available funds to an account designated by such Holder.
(e) Notwithstanding anything to the contrary in this Section
5.2, if the Call under this Section 5.2 occurs prior to (and including) the
second anniversary of the Closing Date, the Warrant Shares (issued or
represented by Warrants) to be repurchased by the Corporation shall be subject
to the Applicable Reduction (if any). In such event, each Holder shall deliver
to the Corporation all of its Warrant Shares (or Warrant Shares represented by
Warrants), against payment of an amount equal to the product obtained by
multiplying (i) the number of Warrant Shares (or Warrant Shares represented by
Warrants) being repurchased, as adjusted to reflect the Applicable Reduction, by
(ii) the Call Price less, in the case of the repurchase of Warrants, the
aggregate exercise price for the Warrant Shares represented thereby (excluding
the exercise price for Warrants Shares excluded by the Applicable Reduction), by
cashier's or certified check of a creditworthy bank payable to such Holder or,
at the option of such Holder, by wire transfer of immediately available funds to
an account designated by such Holder.
(f) If within eighteen (18) months following the exercise of
the Call (i) all or substantially all of the Corporation's consolidated assets
are sold for a consideration that implies a value of the Corporation's equity
per share of Common Stock (on a Fully-Diluted Basis) which exceeds the Call
Price, (ii) a merger or consolidation of the Corporation at a consideration per
share of Common Stock (on a Fully-Diluted Basis) in excess of the Call Price, or
(iii) ten percent (10%) or more of the Common Stock outstanding as of the date
of the Call Notice is sold in a single transaction or series of related
transactions, or a public offering registered under the Securities Act is
consummated, at a price per share in excess of the Call Price, then, in any such
case, upon consummation of any such transaction, each Holder shall be entitled
to receive from the Corporation an amount in cash equal to such excess
multiplied by the number of Warrant Shares purchased from such Holder by the
Corporation under the Call, payable by certified or cashier's check (of a bank
reasonably acceptable to such Holder) or wire transfer of immediately available
funds to an account designated by such Holder. In the event any issuance or sale
during such
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18-month period is for non-cash consideration, the fair value of such
consideration shall be determined in accordance with the Valuation Procedure.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.1. REPRESENTATIONS AND WARRANTIES OF ING. ING represents
that it is acquiring the Warrant to be issued to it on the Closing Date for its
own account, for investment purposes only and not with a view to any
distribution or public offering in violation of the Securities Act.
SECTION 6.2. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. The
Corporation hereby represents and warrants to ING as follows:
(a) ORGANIZATION. The Corporation is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, has all requisite power and
authority and has all material governmental licenses, approvals, consents
and authorizations necessary to own its property and assets and to carry
on its business as currently conducted and is qualified to do business in
each jurisdiction in which the nature of the business conducted or the
property owned or leased by it requires such qualification except where
the failure to be so qualified or licensed would not have a material
adverse effect on the business, condition, operations or properties of the
Corporation.
(b) CORPORATE POWER AND AUTHORITY; NO REQUIRED
CONSENTS OR APPROVALS. (i) The Corporation has the power
to execute, deliver and perform its obligations under this
Agreement, the Warrants, the Registration Rights Agreement
and the Stockholders Agreement.
(ii) The execution, delivery and performance by the
Corporation of this Agreement, the Registration Rights Agreement, the
Stockholders Agreement, the issuance of Warrants and the issuance of
Warrant Shares upon exercise of
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each Warrant, have been duly authorized by all required corporate and
stockholder action of the Corporation and will not (i) violate any
provision of Applicable Law, any Organizational Document, or any indenture
or other material agreement or instrument to which the Corporation is a
party or by which the Corporation or any of its properties are or may be
bound, (ii) conflict with, result in a breach of or constitute (alone or
with notice or lapse of time or both) a default under any such indenture
or other material agreement or instrument to which the Corporation is a
party, or by which the Corporation or any of its properties are or may be
bound, (iii) result in the creation or imposition of any Lien upon any
property of the Corporation or (iv) require registration or filing with,
or consent, approval or any other action by any Governmental Authority.
(c) ENFORCEABILITY. This Agreement, the Registration Rights
Agreement and the Stockholders Agreement have been duly executed and
delivered by the Corporation and each constitutes a legal, valid, binding
and enforceable obligation of the Corporation except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar event affecting the enforcement of creditors rights
generally and except as enforceability may be subject to general
principles of equity, whether such principles are applied in a court of
equity. When the Warrants and Warrant Certificates have been issued as
contemplated hereby, (i) each Warrant will constitute the legal, valid,
binding and enforceable obligation of the Corporation and (ii) the Warrant
Shares, when issued upon the exercise or exchange of a Warrant in
accordance with the terms hereof and of such Warrant, will be duly
authorized, validly issued, fully paid and nonassessable shares of the
Common Stock with no personal liability attaching to the ownership
thereof.
(d) CAPITALIZATION. (i) Attached hereto as
Schedule I is a correct and complete description of the
authorized and outstanding capital stock of the Corporation.
All such outstanding shares are duly authorized, validly
issued, fully paid and nonassessable. The Warrant Shares
represent 5.0966% of the outstanding shares of Common Stock
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and 4.97% of the outstanding shares of Common Stock on a fully-diluted
basis (which determination will (a) assume the exercise of all outstanding
Options or Convertible Securities, whether or not currently exercisable or
convertible, and irrespective of the exercise or conversion price and
other related terms, and (b) not be made in accordance with the "treasury
method").
(ii) Except as set forth on Schedule I hereto, except with
respect to the Warrants no Person holds any option, warrant, subscription
right, commitment or claim with respect to any capital stock of the
Corporation and no securities convertible into or exercisable or
exchangeable for any capital stock of the Corporation have been authorized
or issued.
(e) ORGANIZATIONAL DOCUMENTS. Attached hereto as Schedule II
are correct and complete copies of (i) the Corporation's Certificate of
Incorporation and By-laws, which include the terms of the Common Stock as
in effect on the date hereof, (ii) all outstanding warrants, options and
other convertible securities that can be converted into the Common Stock,
and (iii) all outstanding registration rights that have been granted and
in effect as of the date hereof.
ARTICLE VII
COVENANTS OF THE CORPORATION
SECTION 7.1. NOTICES OF CERTAIN ACTIONS. (a) In the
event that the Corporation:
(i) shall authorize issuance to all holders of Common Stock of
rights or warrants to subscribe for or purchase capital stock of the
Corporation or of any other subscription rights or warrants; or
(ii) shall authorize a dividend or other distribution to all
holders of Common Stock of evidences of its indebtedness, cash or other
property or assets; or
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(iii) proposes to become a party to any consolidation or
merger for which approval of any stockholders of the Corporation will be
required, or to a conveyance or transfer of the properties and assets of
the Corporation substantially as an entirety, or of any capital
reorganization or reclassification or change of the Common Stock (other
than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination);
or
(iv) commences a voluntary or involuntary
dissolution, liquidation or winding up;
(v) commences a Qualified Public Offering;
(vi) defaults under this Agreement; or
(vii) proposes to take any other action which
would require an adjustment pursuant to Section 4.4;
then the Corporation shall provide a written notice to each Holder stating (i)
the date as of which the holders of record of Common Stock to be entitled to
receive any such rights, warrants or distribution are to be determined, (ii) the
material terms of any such consolidation or merger and the expected effective
date thereof, or (iii) the material terms of any such conveyance, transfer,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of record of Common Stock will be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, conveyance, transfer, dissolution,
liquidation or winding up. Such notice shall be given not later than twenty (20)
Business Days prior to the effective date (or the applicable record date, if
earlier) of such event. The failure to give the notice required by this Section
7.1 or any defect therein shall not affect the legality or validity of any
distribution, right, warrant, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or the vote upon any action.
SECTION 7.2. FINANCIAL STATEMENTS AND REPORTS. The
Corporation shall furnish to each Holder:
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(a) as soon as available but in any event within ninety (90)
days after the end of each Fiscal Year (commencing with the Fiscal Year ending
December 31, 1994), consolidated balance sheets, income statements and cash flow
statements of the Corporation and its Subsidiaries, showing its financial
condition as of the close of such Fiscal Year and the results of its operations
during such year, all the foregoing financial statements to be audited by
independent accountants of nationally recognized standing and prepared in
accordance with GAAP;
(b) as soon as available but in any event within thirty (30)
days after the end of each fiscal quarter, the unaudited consolidated balance
sheets, income statements and cash flow statements, showing the financial
condition and results of operations of the Corporation, as at the end of each
such fiscal quarter and for the then elapsed portion of the Fiscal Year, in each
case prepared in accordance with GAAP;
(c) as soon as practicable and in any event not less than 15
days after the end of each fiscal year of the Corporation, an annual operating
budget for the Corporation for the succeeding fiscal year, containing budget of
profit and loss and cash flow (the "Budget"). Promptly upon preparation thereof,
the Corporation will furnish to the Holder any revisions of such previously
furnished Budgets; and
(d) promptly upon their becoming available, copies of any
statements, reports and other communications, if any, which the Corporation
shall have provided to its stockholders or filed with the Commission or any
national securities exchange;
SECTION 7.3. INFORMATION RIGHTS. Each Holder shall have all of the
rights of a holder of Common Stock under Applicable Law, whether or not such
holder has exercised or exchanged any Warrants, to receive lists of stockholders
or other information respecting the Corporation, to inspect the books and
records of the Corporation and to visit the properties of the Corporation.
SECTION 7.4. REGULATED HOLDERS. (a) Notwithstanding
any other provision of this Agreement or the Stockholders
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Agreement to the contrary, except as provided in this Section 7.4, without the
prior written consent of any Regulated Holder, the Corporation shall not redeem,
purchase or otherwise acquire, directly or indirectly, convert, take any action
(including any amendment to an Organizational Document) with respect to the
voting rights of, or undertake any other action or transaction (including
without limitation any merger, consolidation or recapitalization) affecting, any
shares of its capital stock or other voting securities if the result of the
foregoing would be to cause the Ownership of the capital stock of any Person by
such Regulated Holder, or the Ownership of voting securities of any Person (or
any class thereof) by such Regulated Holder, to exceed the quantity of such
capital stock or voting securities (or any class thereof) that such Regulated
Holder is permitted under Applicable Law to Own. Any action or transaction
referred to in the preceding sentence shall be referred to herein as a "Section
7.4 Transaction". The Corporation shall be permitted to undertake any Section
7.4 Transaction which would otherwise result in the Ownership by any Regulated
Holder of voting securities (or any class thereof) in excess of the quantity
permitted by Applicable Law if, in a manner reasonably satisfactory to such
Regulated Holder, the Corporation shall provide or cause to be provided for such
Regulated Holder (i) to receive in connection with any such action or
transaction a number of shares or other units of Equivalent Nonvoting Securities
equal to such excess in lieu of the same number of shares or other units of the
voting securities it would otherwise have received or (ii) if it would not
otherwise have received voting securities in connection with such action or
transaction, to exchange a number of shares or other units of voting securities
then held by such Regulated Holder equal to such excess for the same number of
shares or other units of Equivalent Nonvoting Securities. If the Corporation
proposes to undertake any action or transaction which could constitute a Section
7.4 Transaction, it shall provide the Holders at least 15 days prior written
notice thereof. If, in the written opinion of counsel to any Regulated Holder
(which may be internal counsel) delivered within 10 days following receipt of
such notice, such action or transaction constitutes a Section 7.4 Transaction
with respect to such Regulated Holder, then the Corporation shall delay
undertaking such Section 7.4 Transaction for the purpose of using its best
efforts to agree on a manner in which to restructure
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such action or transaction in a manner reasonably satisfactory to the
Corporation and such Regulated Holder so that it no longer would constitute a
Section 7.4 Transaction. If the Corporation and such Regulated Holder are unable
to agree, within 20 days of the delivery of such written opinion, upon a manner
in which to so restructure such Section 7.4 Transaction, and such Section 7.4
Transaction is a bona fide action or transaction proposed by the Corporation in
good faith, then the Corporation shall be permitted to undertake such Section
7.4 Transaction if prior to or concurrently with doing so it purchases from such
Regulated Holder, at a purchase price equal to the Market Value Per Share, a
number (specified by such Regulated Holder) of Warrants (based on the number of
Warrant Shares represented thereby) or Warrant Shares sufficient, in the written
opinion of counsel to such Regulated Holder (which may be internal counsel), to
prevent such Section 7.4 Transaction from causing the Ownership of the capital
stock of any Person by such Regulated Holder to exceed the quantity of such
capital stock that such Regulated Holder is permitted under Applicable Law to
Own.
(b) If it becomes unlawful for any Regulated Holder to continue to hold
some or all of the Warrants or Warrant Shares held by it, or restrictions are
imposed on any Regulated Holder by Applicable Law which, in the reasonable
judgment of such Regulated Holder, make it unduly burdensome to continue to hold
such Warrants or Warrant Shares, the Corporation shall (i) cooperate with such
Regulated Holder in any efforts by such Regulated Holder to dispose of some or
all of such Warrants or Warrant Shares in a prompt and orderly manner, including
without limitation providing (and authorizing such Regulated Holder to provide)
financial and other information concerning the Corporation to any prospective
purchaser of such Warrants or Warrant Shares and (ii) at the request of such
Regulated Holder, take all steps (including without limitation using its best
efforts to cause its Organizational Documents to be amended) necessary to create
an Equivalent Nonvoting Security with respect to the Warrant Shares then held by
such Regulated Holder and permit such Regulated Holder to exchange Warrant
Shares for the same number of shares or other units of such Equivalent Nonvoting
Security; PROVIDED, HOWEVER, that nothing in this Section 7.4(b) shall require
the Corporation to register or qualify such
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Warrants or Warrant Shares under any federal or state securities laws.
(c) If, in the written opinion of counsel to any Regulated Holder (which
may be internal counsel), the full exercise by such Regulated Holder of its
preemptive rights under Section 6 of the Stockholders Agreement would cause such
Regulated Holder to violate any provision of Applicable Law with respect to its
Ownership of voting securities of the Corporation, then the Corporation will
take all steps (including without limitation using its best efforts to cause its
Organizational Documents to be amended) necessary to create an Equivalent
Nonvoting Security with respect to the securities offered under Section 6 of the
Stockholders Agreement and such Regulated Holder shall be entitled to receive,
in lieu of such number (as it shall specify) of shares or other units of
securities it would otherwise be entitled to acquire pursuant to Section 6 of
the Stockholder Agreement, the same number of shares or other units of such
Equivalent Nonvoting Security.
SECTION 7.5. MERGER OR CONSOLIDATION OF THE CORPORATION. The
Corporation will not merge or consolidate with or into, or sell, transfer or
lease all or substantially all of its property to, any other corporation or
partnership unless the successor or purchasing entity, as the case may be (if
not the Corporation), is organized under the laws of the United States of
America or any state or political subdivision thereof and shall expressly agree
to provide to each Holder the securities, cash or property required by Section
4.4.4 hereof upon the exercise or exchange of Warrants and expressly assumes, by
supplemental agreement reasonably satisfactory in form and substance to each
Holder, the due and punctual performance and observance of each and every
covenant and condition of this Agreement to be performed and observed by the
Corporation; PROVIDED, HOWEVER, that the initial obligation of such successor
with respect to the exercise or exchange of Warrants shall be only as set forth
in Section 4.4.4.
SECTION 7.6. RESERVATION OF SHARES. The Corporation
will at all times have authorized, and reserve and keep
available, free from preemptive rights, for the purpose of
enabling it to satisfy any obligation to issue Warrant Shares
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upon the exercise or exchange of each Warrant, the number of shares of Common
Stock deliverable upon exercise or exchange of all outstanding Warrants.
SECTION 7.7. CURRENT PUBLIC INFORMATION. At all times after the
Corporation has filed a registration statement with the Securities and Exchange
Commission pursuant to the requirements of either the Securities Act or the
Securities Exchange Act, the Corporation will file all reports required to be
filed by it under the Securities Act and the Securities Exchange Act and the
rules and regulations adopted by the Securities and Exchange Commission
thereunder, and will take such further action as any holder or holders of
restricted securities may reasonably request, all to the extent required to
enable such holders to sell restricted securities pursuant to (i) Rule 144 or
Rule 144A adopted by the Securities and Exchange Commission under the Securities
Act (as such rule may be amended from time to time) or any similar rule or
regulation hereafter adopted by the Securities and Exchange Commission. Upon
request, the Corporation will deliver to such holders a written statement as to
whether it has complied with such requirements.
SECTION 7.8. PUBLIC DISCLOSURES. The Corporation will not disclose
any Holder's name or identity as an investor in the Corporation in any press
release or other public announcement or in any written consent of such Holder,
unless such disclosure is required by applicable law or governmental regulations
or by order of a court of competent jurisdictions in which case prior to making
such disclosure the Corporation will given written notice to such Holder
describing in reasonable detail the proposed content of such disclosure and will
permit the Holder to review and comment upon the form and substance of such
disclosure.
SECTION 7.9. FIDUCIARY DUTIES OF THE CORPORATION. The Corporation
and its directors shall owe the holders of the Warrants the same fiduciary
duties that the Corporation and its directors would owe to the holders of the
Warrant Shares underlying the Warrants.
ARTICLE VIII
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MISCELLANEOUS
SECTION 8.1. NOTICES. All notices, demands and requests of any kind
to be delivered to any party hereto in connection with this Agreement shall be
in writing (i) delivered personally, (ii) sent by nationally-recognized
overnight courier, (iii) sent by first class, registered or certified mail,
return receipt requested or (iv) sent by facsimile, in each case to such party
at its address as follows:
(a) if to the Corporation, to:
Cornell Cox, Inc.
4801 Woodway
Suite 400 West
Houston, Texas 77056
Attention: Mr. Steven Logan
Telecopier: 713/623-2853
(b) if to ING, to:
Internationale Nederlanden (U.S.)
Capital Corporation
135 East 57th Street
New York, New York 10022-2101
Attention: Merchant Banking Group New York
Mr. David Scopelliti
Mr. David Balestrery
Telecopier: 212/593-3362
Any notice, demand or request so delivered shall constitute valid notice under
this Agreement and shall be deemed to have been received (i) on the day of
actual delivery in the case of personal delivery, (ii) on the next Business Day
after the date when sent in the case of delivery by nationally-recognized
overnight courier, (iii) on the fifth Business Day after the date of deposit in
the U.S. mail in the case of mailing or (iv) upon receipt in the case of a
facsimile transmission. Any party
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hereto may from time to time by notice in writing served upon the other as
aforesaid designate a different mailing address or a different Person to which
all such notices, demands or requests thereafter are to be addressed.
SECTION 8.2. NO VOTING RIGHTS; LIMITATIONS OF LIABILITY. No Warrant
shall entitle the holder thereof to any voting rights or, except as otherwise
provided herein, other rights of a stockholder of the Corporation, as such. No
provision hereof, in the absence of affirmative action by the Holder to purchase
Warrant Shares, and no enumeration herein of the rights or privileges of the
Holder shall give rise to any liability of such Holder for the Exercise Price of
Warrant Shares acquirable by exercise hereof or as a stockholder of the
Corporation.
SECTION 8.3. AMENDMENTS AND WAIVERS. Any provision of
this Agreement may be amended or waived, but only pursuant to a
written agreement signed by the Corporation and the Requisite
Holders.
SECTION 8.4. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such provision and
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 8.5. SPECIFIC PERFORMANCE. Each Holder shall have the right
to specific performance by the Corporation of the provisions of this Agreement,
in addition to any other remedies it may have at law or in equity. The
Corporation hereby irrevocably waives, to the extent that it may do so under
applicable law, any defense based on the adequacy of a remedy at law which may
be asserted as a bar to the remedy of specific performance in any action brought
against the Corporation for specific performance of this Agreement by the
Holders of the Warrants or Warrant Shares.
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SECTION 8.6. BINDING EFFECT. This Agreement shall be
binding upon and inure to the benefit of the Corporation, each
Holder and their respective successors and assigns.
SECTION 8.7. COUNTERPARTS. This Agreement may be executed (manually
or by facsimile) by the parties hereto in several counterparts, each of which
shall be deemed to be an original and all of which shall constitute together but
one and the same agreement. This Agreement shall become effective when
counterparts hereof executed on behalf of the Corporation and each Holder shall
have been received.
SECTION 8.8. GOVERNING LAW; ENTIRE AGREEMENT. THIS AGREEMENT AND THE
WARRANTS, SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK. This Agreement and the Warrants,
constitute the entire understanding among the parties hereto with respect to the
subject matter hereof and supersede any prior agreements, written or oral, with
respect thereto.
SECTION 8.9. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any Person other than the Corporation and each
Holder of a Warrant or a Warrant Share any legal or equitable right, remedy or
claim hereunder.
SECTION 8.10. HEADINGS. The various headings of this
Agreement are inserted for convenience only and shall not affect
the meaning or interpretation of this Agreement or any provisions
hereof or thereof.
SECTION 8.11. EXPENSES. The Corporation will promptly (and in any
event within thirty (30) days of receiving any statement or invoice therefor)
pay all reasonable fees, expenses and costs relating hereto, including, but not
limited to, (i) the fees and disbursements of counsel to the Holder in preparing
this Agreement, (ii) all transfer, stamp, documentary or other similar taxes,
assessments or charges levied by any governmental or revenue authority in
respect hereof or any other document referred to herein, (iii) fees and expenses
(including, without limitation, reasonable attorneys' fees) incurred in respect
of the enforcement by Holders, if successful, of the rights granted to Holders
under this Agreement, and (iv) the expenses relating
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to the consideration, negotiation, preparation or execution of any amendments,
waivers or consents requested by the Corporation pursuant to the provisions
hereof, whether or not any such amendments, waivers or consents are executed.
SECTION 8.12. ATTORNEYS' FEES. In any action or proceeding brought
by a party to enforce any provision of this Agreement, the prevailing party
shall be entitled to recover the reasonable costs and expenses incurred by it in
connection with that action or proceeding (including, but not limited to,
attorneys' fees).
SECTION 8.13. OTHER TRANSACTIONS. Nothing contained herein shall
preclude the Holder from engaging in any transaction, in addition to those
contemplated by this Agreement with the Corporation or any of its Affiliates in
which the Corporation or such Affiliate is not restricted hereby from engaging
with any other Person.
SECTION 8.14. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF THE HOLDERS OR THE CORPORATION SHALL BE BROUGHT
AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; THE
CORPORATION HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET
FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY
IN CONNECTION WITH SUCH LITIGATION. THE CORPORATION FURTHER IRREVOCABLY CONSENTS
TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL
SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE CORPORATION HEREBY
EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY
SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT
ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT
THAT THE CORPORATION HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION
OF ANY COURT
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OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR
TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF
OR ITS PROPERTY, THE CORPORATION HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their authorized officers, all as of the date
and year first above written.
CORNELL COX, INC.
By: /S/ STEVEN W. LOGAN
Name: Steven W. Logan
Title: Chief Financial Officer
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION
By: /S/ DAVID SCOPELLITI
Name: David Scopelliti
Title: Vice President
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EXHIBITS
Exhibit A: Terms of Class A Common Stock and Class B
Common Stock
Exhibit B: Form of Warrant Certificate
Exhibit C: Opinion(s) of Counsel
SCHEDULES
Schedule I: Existing Capitalization/
Existing Convertible Equity Rights/
Outstanding Securities and Existing
Registration Rights
Schedule II: Articles of Incorporation and Bylaws
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EXHIBIT A
COMMON STOCK TERMS IN CHARTER DOCUMENTS
Except as herein otherwise expressly provided, all Class A Common Stock
and Class B Common Stock (collectively referred to herein as "COMMON STOCK")
shall be identical and shall entitle the holders thereof to the same rights and
privileges.
1. DIVIDENDS. Except as otherwise provided by the Certificate of
Incorporation or by applicable law, only the holders of Class A Common Stock
shall be entitled to the payment of dividends. Subject to the Stockholders
Agreement, the Board of Directors of the Corporation may cause dividends to be
paid to the holders of Class A Common Stock out of funds legally available for
the payment of dividends by declaring an amount per share as a dividend. When
and as dividends are declared, whether payable in cash, in property or in shares
of stock of the Corporation, the holders of Class A Common Stock shall be
entitled to share equally, share for share, in such dividends. Neither the Class
A Common Stock nor the Class B Common Stock may be subdivided, split,
consolidated or reclassified unless the other is ratably subdivided, split,
consolidated or reclassified.
2. LIQUIDATION RIGHTS. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of Common Stock shall be entitled to share, ratably according to the
number of Common Stock held by them, in all remaining assets of the Corporation
available for distribution to its stockholders.
3. VOTING RIGHTS. Except as otherwise provided in this Certificate of
Incorporation or by applicable law, only the holders of Class A Common Stock
shall be entitled to vote on each matter on which the stockholders of the
Corporation shall be entitled to vote, and each holder of Class A Common Stock
shall be entitled to one vote for each share of Class A Common Stock held by
him; PROVIDED, HOWEVER, (i) the holders of Class B Common Stock shall have no
right to vote on any matters to be voted on by the stockholders of the
Corporation and (ii) the Class B Common Stock shall not be included in
determining the number of shares voting or entitled to vote on such matters.
-1-
4. CONVERSION OF CLASS B COMMON STOCK; RESERVATION OF
STOCK.
a. Upon the earlier of (i) the consummation of an
initial public offering of securities of the Corporation and (ii)
the tenth anniversary of the Closing Date (the "Triggering
Event"), subject to the provisions of this PARAGRAPH 4, the Class B Common Stock
of each record holder shall be automatically converted into the same number of
Class A Common Stock.
b. Each conversion of Class B Common Stock into Class A Common Stock
shall be effected by the surrender of the certificate or certificates
representing Class B Common Stock to be converted at the principal office of the
Corporation (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holder or holders of Class
B Common Stock) at any time during its usual business hours. Promptly after such
surrender and the receipt of such written notice, the Corporation shall issue
and deliver in accordance with any instructions the certificate or certificates
for the Class A Common Stock issuable upon such conversion. To the extent
permitted by law, such conversion shall be deemed to have been effected as of
the close of business on the date of the Triggering Event.
c. The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares or in treasury a sufficient number of
Class A Common Stock as may be required, solely for the purpose of issue upon
the conversion of outstanding Class B Common Stock as provided in this PARAGRAPH
4. All Class A Common Stock which shall be so issuable shall, when issued, be
duly and validly issued, fully paid and non-assessable, free of any preemptive
rights. The Corporation will use reasonable efforts to take all such action as
may be necessary to assure that all such Class A Common Stock may be so issued
without violation by the Corporation of any applicable law or regulation or any
requirements of any domestic stock exchange upon which Common Stock may be
listed.
d. The issuance of certificates for Class A Common Stock upon
conversion of Class B Common Stock shall be made without charge to the holders
of such Class B Common Stock for any issuance tax in respect thereof, or other
cost incurred by the Corporation in connection with such conversion and the
related issuance of Common Stock, provided that the Corporation shall not be
required to pay any such tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
that of the holder of the Class B Common Stock converted. The Corporation will
not take any action which would cause the total number of Class A Common Stock
issuable upon conversion of the Class B Common Stock then outstanding, together
with the total number of Class A Common Stock then outstanding and the total
number of Class A Common Stock reserved for issuance upon conversion of any
Equity Rights or for any other purpose, to exceed the total number of shares of
Class A Common Stock then authorized by the Corporation's Certificate of
Incorporation.
-2-
EXHIBIT B
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO
AN EXEMPTION FROM, OR OTHERWISE IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF SUCH ACT. IN ADDITION, THE SECURITIES REPRESENTED
HEREBY ARE SUBJECT TO THE LIMITATIONS ON TRANSFER SET FORTH IN THE WARRANT
ISSUANCE AGREEMENT DATED AS OF MARCH 14, 1995, BETWEEN THE CORPORATION AND
INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION. A COPY OF THE WARRANT
ISSUANCE AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE
CORPORATION AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER HEREOF UPON
WRITTEN REQUEST TO THE CORPORATION.
CORNELL COX, INC.
No. __ Warrant to Purchase
___ Shares
of Common Stock
March __, 1995
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES that, for value received, INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION, a Delaware corporation ("ING"), is entitled to
purchase from CORNELL COX, INC., a Delaware corporation (the "Corporation"), ___
shares of the Class B Common Stock, $.01 par value (the "Class B Common Stock"),
of the Corporation at the price (the "Exercise Price") of $1.00 per share, at
any time or from time to time during the period commencing on the date hereof
and ending at 5:00 P.M. on the seventh anniversary of the date hereof (the
"Expiration Date"); PROVIDED, HOWEVER, that this Warrant may not be exercised
for Common Stock by any Regulated Holder to the extent that such exercise will
result in a violation of any Applicable Law.
This Warrant has been issued pursuant to the Warrant Issuance
Agreement (the "Warrant Issuance Agreement") dated the
date hereof, between the Corporation and the Holder, and is subject to the terms
and conditions, and entitled to the benefits, thereof, including provisions (i)
for adjusting the number of Warrant Shares issuable upon the exercise hereof and
the Exercise Price to be paid upon such exercise, (ii) providing for certain
"call" rights and (iii) providing certain information and other rights. In
addition, this Warrant is subject to certain terms and conditions, and is
entitled to certain benefits, as set forth in each of the Registration Rights
Agreement, as amended by Amendment No. 1, dated as of the date hereof (the
"Registration Rights Agreement"), and the Amended and Restated Stockholders
Agreement, dated as of the date hereof (the "Stockholders Agreement"), each
among the Corporation, the Investors defined therein, David Cornell, Norman Cox
and ING, including provisions (i) providing preemptive rights upon the sale by
the Corporation of equity securities, (ii) providing for certain "tag-along"
rights and (iii) providing certain information and other rights. A copy of each
of the Warrant Issuance Agreement, the Registration Rights Agreement and the
Stockholders Agreement is available for inspection at the principal office of
the Corporation and will be furnished without charge to the Holder upon written
request to the Corporation. Capitalized terms used but not defined herein shall
have the meaning given to them in the Warrant Issuance Agreement.
SECTION 1. EXERCISE OF WARRANT. On any Business Day, prior to the
Expiration Date, the Holder may exercise this Warrant, in whole or in part, by
delivering to the Corporation this Warrant accompanied by a properly completed
Exercise Form in the form of Annex A and a check in an aggregate amount equal to
the product obtained by multiplying (a) the Exercise Price by (b) the number of
Warrant Shares being purchased; PROVIDED, HOWEVER, in the event the Holder
exercises this Warrant in connection with or immediately prior to a sale by the
Holder of Warrant Shares, in lieu of paying the applicable Exercise Price
therefor, the Holder may elect to receive that number of Warrant Shares which is
equal to the number of shares for which this Warrant is being exercised less the
number of shares having a Market Value equal to such applicable Exercise Price,
where such Market Value per Share shall be equal to the price per share at which
the Holder is selling the Warrants. Any partial exercise of a Warrant shall be
for a whole number of Warrant Shares only.
SECTION 2. EXERCISE PRICE. The Exercise Price is subject
to adjustment from time to time as provided in the Warrant
Issuance Agreement.
SECTION 3. EXCHANGE OF WARRANT. On any Business Day prior
to the Expiration Date, the Holder may exchange this Warrant, in
whole or in part, for Warrant Shares by delivering to the
Corporation this Warrant accompanied by a properly completed
Exchange Form in the form of Annex B. The number of shares of Common Stock to be
received by the Holder upon such exchange shall be determined as provided in
Section 4.2 of the Warrant Issuance Agreement.
SECTION 4. TRANSFER. Subject to the limitations set forth in the Warrant
Issuance Agreement, this Warrant may be transferred by the Holder by delivery to
the Corporation of this Warrant accompanied by a properly completed Assignment
Form in the form of Annex C.
SECTION 5. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant
is lost, stolen, mutilated or destroyed, the Corporation will issue a new
Warrant of like denomination and tenor upon compliance with the provisions set
forth in the Warrant Issuance Agreement.
SECTION 6. NO STOCKHOLDER RIGHTS. This Warrant shall not entitle the
holder hereof to any voting rights or, except as otherwise provided in the
Warrant Issuance Agreement, the Stockholders Agreement or the Registration
Rights Agreement, other rights of a stockholder of the Corporation, as such.
SECTION 7. SUCCESSORS. All of the provisions of this
Warrant by or for the benefit of the Corporation or the Holder
shall bind and inure to the benefit of their respective
successors and assigns.
SECTION 8. HEADINGS. Section headings in this Warrant have been Inserted
for convenience of reference only and shall not affect the construction of, or
be taken into consideration in interpreting, this Warrant.
SECTION 9. GOVERNING LAW. This Warrant shall be construed
in accordance with and governed by the laws of the State of
New York (without giving effect to principles or conflicts or
laws).
-1-
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed
by its duly authorized officers under its corporate seal, and this Warrant to be
dated as of the date first set forth above.
CORNELL COX, INC.
By:
Name:
Title:
[CORPORATE SEAL]
ATTEST:
By
Name :
Title:
-2-
ANNEX A
ELECTION TO EXERCISE FORM
(To Be Executed By The Holder of This Warrant
In Order to Exercise This Warrant)
The undersigned hereby irrevocably elects to exercise the right to
purchase ______________ shares of Class B Common Stock of Cornell Cox, Inc.
covered by this Warrant according to the conditions hereof and herewith makes
payment of the Exercise Price of such shares in full.
-----------------------------
Signature
-----------------------------
-----------------------------
Address
Dated: _________________________
ANNEX B
EXCHANGE FORM
(To Be Executed By The Holder of This Warrant
In Order to Assign This Warrant Certificate)
The undersigned hereby irrevocably elects to exchange this Warrant to
purchase ___________ shares of Class B Common Stock of Cornell Cox, Inc. covered
by this Warrant for ___________ Warrants to purchase the denominations of shares
of Common Stock set forth below to the persons named and hereby sells, assigns
and transfers unto such persons that portion of this Warrant represented by such
new Warrants and all rights evidenced thereby and does irrevocably constitute
and appoint ____________________, attorney, to exchange and transfer this
Warrant as aforesaid on the books of the Corporation.
NUMBER OF WARRANT SHARES ASSIGNEE
- ------------ -----------------------------
- ------------ -----------------------------
-----------------------------
Signature
-----------------------------
-----------------------------
Address
FOR USE BY THE CORPORATION ONLY:
This Warrant No. __ cancelled (or transferred or exchanged) this
________ day of _____________, _____________ shares of Class __
Common Stock issued therefor in the name of _________________,
Warrant No. ___ for __________ shares of Class __ Common Stock in
the name of ________________________.
Dated: ____________________________
ANNEX C
ASSIGNMENT FORM
(To Be Executed By The Holder of This Warrant
In Order to Assign This Warrant Certificate)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _____________________________ this Warrant and all rights evidenced thereby
and does irrevocably constitute and appoint __________________, attorney, to
transfer the said Warrant on the books of the Corporation.
-----------------------------
Signature
-----------------------------
-----------------------------
Address
Dated: _________________________
EXHIBIT C
OPINION(S) OF COUNSEL
The matters set forth below shall be addressed in the opinion(s) of the
Corporation's counsel delivered in connection with the execution and delivery of
the Warrant Issuance Agreement, dated March __, 1995 between Cornell Cox, Inc.,
a Delaware corporation, and Internationale Nederlanden (U.S.) Capital
Corporation, a Delaware corporation (the "Agreement"). Capitalized terms used
but not defined herein shall have the meanings specified in the Agreement.
1. The Corporation (a) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, (b)
has all requisite corporate power and authority to own its property and assets
and to carry on its business as now conducted and as proposed to be conducted,
and (c) has the corporate power and authority to execute, deliver and perform
its obligations under each of the Agreement, the Warrant and the Registration
Rights Agreement, each dated the date hereof, and the agreements contemplated
thereby to which it is or will be a party (collectively, the "Material
Agreements").
2. The execution, delivery and performance by the Corporation, of each of
the Material Agreements to which it is a party, the issuance of the Warrants and
the other transactions contemplated by the Material Agreements, (a) have been
duly authorized by all requisite corporate and, if required, stockholder action,
and (b) do not (i) violate or conflict with (A) any provision of law, any
statute, rule or regulation, or of the Organizational Documents, (B) any order
of any court or governmental entity or (C) any provision of any indenture,
agreement or other instrument to the Corporation is a party or by which its
properties are bound, (ii) conflict with, result in a breach of or constitute
(alone or with notice or lapse of time or both) a default under any such
indenture, agreement or other instrument (iii) to the best of our knowledge,
result in the creation or imposition of any lien (other than any lien created
under or in connection with the Credit Agreement) upon or with respect to any
property or assets now owned or hereafter acquired by the Corporation.
3. The amendments to the Corporation's Organizational Documents and other
agreements and instruments contemplated by the Material Agreements have been
duly authorized, filed and obtained.
4. The Material Agreements to which the Corporation is a party have each
been duly authorized, executed and delivered by the Corporation. Each such
Material Agreement constitutes the legal, valid and binding obligation of the
Corporation, enforceable against the Corporation in accordance with its terms.
5. As of the Closing Date, the authorized capital stock of Corporation
consists of (i) __________ shares of class A common stock, $.01 par value (the
"Class A Common Stock") of which _________ shares are issued and outstanding,
and (ii) _________ shares of class B common stock, $.01 par value (the "Class B
Common Stock") of which __________ shares are issued and outstanding. All
outstanding shares of capital stock of the Corporation are fully paid and
nonassessable.
6. The Class B Common Stock when issued in accordance with the Warrant
Agreement will be duly and validly issued, fully paid and non-assessable Common
Stock of the Corporation.
-1-
EXHIBIT 11.1
CORNELL CORRECTIONS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------------------------------------- PRO FORMA
SIX MONTHS ENDED ------------
YEAR ENDED DECEMBER 31, JUNE 30, YEAR ENDED
----------------------------------------------------- -------------------- DECEMBER 31,
1991 1992 1993 1994 1995 1995 1996 1995
--------- --------- --------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss).................... $ (742) $ 940 $ (915) $ (477) $ (7,442) $ 34 $ (388) $ (4,601)
========= ========= ========= ========= ========= ========= ========= ============
Shares used in computing earnings (loss) per share:
Weighted average common shares
and common share equivalents... 1,500 1,603 1,807 2,923 3,188 3,196 3,190 3,188
Less treasury shares............. -- -- -- -- (93) -- (555) (93)
Effect of shares issuable under
stock option plans and warrants
granted subsequent to July 15,
1995, based on the treasury
stock method................... 1,048 1,048 1,048 1,048 1,048 1,048 1,048 1,048
Common shares offered by the
Company........................ -- -- -- -- -- -- -- 3,023
--------- --------- --------- --------- --------- --------- --------- ------------
2,548 2,651 2,855 3,971 4,143 4,244 3,683 7,166
========= ============
Earnings (loss) per share............ $ (0.29) $ 0.35 $ (0.32) $ (0.12) $ (1.80) $ 0.01 $ (0.11) $ (.64)
========= ========= ========= ========= ========= ========= ========= ============
</TABLE>
SIX MONTHS
ENDED
JUNE 30,
1996
----------
Net income (loss).................... $ 1,100
==========
Shares used in computing earnings (loss) per share:
Weighted average common shares
and common share equivalents... 3,348
Less treasury shares............. (555)
Effect of shares issuable under
stock option plans and warrants
granted subsequent to July 15,
1995, based on the treasury
stock method................... 1,048
Common shares offered by the
Company........................ 3,023
----------
6,864
==========
Earnings (loss) per share............ $ .16
==========
EXHIBIT 21.1
SUBSIDIARIES OF CORNELL CORRECTIONS, INC.
(AS OF AUGUST 1, 1996)
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
PERCENTAGE OF SECURITIES OWNED BY
VOTING SECURITIES A SUBSIDIARY OF
OWNED BY CORNELL CORNELL CORRECTIONS,
CORRECTIONS, INC. INC.
------------------ ---------------------
<S> <C>
Cornell Corrections of North America.................... 100%
The Cornell Cox Group, L.P.............................. 99% 1%
Cornell Corrections Management, Inc..................... 100%
Cornell Corrections Consulting, Inc................. 100%
International Self Help Services, Inc............... 100%
Cornell Corrections of Texas, Inc................... 100%
Cornell Corrections of California, Inc.............. 100%
Cornell Corrections of Rhode Island, Inc............ 100%
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of (a) our
report dated March 15, 1996 (except as to Notes 1 and 7, for which the date is
July 16, 1996) with respect to the consolidated balance sheets of Cornell
Corrections, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1995, (b) our report dated May 16, 1996 with respect to the combined balance
sheets of MidTex Detention, Inc. and Big Spring Correctional Center as of
September 30, 1994 and 1995, and the related combined statements of operations
and changes in equity and cash flows for the years ended September 30, 1993,
1994 and 1995, (c) our report dated May 20, 1996 with respect to the combined
balance sheet of the Reid Center division of Texas Alcoholism Foundation, Inc.
and The Texas House Foundation, Inc. as of December 31, 1995, and the related
combined statements of operations and fund balance and cash flows for the year
then ended and (d) our report dated May 16, 1996 with respect to the combined
statements of operations, stockholders' equity and cash flows of Eclectic
Communications, Inc. and International Self-Help Services, Inc. for the year
ended March 31, 1994 included in or made a part of this Registration Statement
on Form S-1.
Houston, Texas
August 26, 1996
EXHIBIT 23.3
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Act"), I hereby consent to the use of my name and any references to me as a
person nominated to become a director of Cornell Corrections, Inc. (the
"Company") following the completion of the Company's initial public offering in
the Prospectus constituting a part of the Company's Registration Statement on
Form S-1 (No. 333-08243) filed with the Securities and Exchange Commission
pursuant to the Act.
Dated: August 23, 1996
/S/ CAMPBELL A. GRIFFIN, JR.
Campbell A. Griffin, Jr.
EXHIBIT 23.4
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Act"), I hereby consent to the use of my name and any references to me as a
person nominated to become a director of Cornell Corrections, Inc. (the
"Company") following the completion of the Company's initial public offering in
the Prospectus constituting a part of the Company's Registration Statement on
Form S-1 (No. 333-08243) filed with the Securities and Exchange Commission
pursuant to the Act.
Dated:August 23, 1996
/S/ TUCKER TAYLOR
Tucker Taylor
